Its two-pronged approach will see the Builders Finance Fund extended to developments as small as five homes and Section 106 requirements dropped on sites or 10 homes or fewer.
Communities secretary Eric Pickles said the move would help restore the sector which traditionally played a key role in new housing delivery before the 2008 crash.
Figures from the National Housebuilding Council have suggested that the number of small and medium-sized builders has halved, from 6,167 in 1997 to 2,832 by 2012.
He also confirmed that in very rural areas, sites of 5 homes or fewer should not face S106 charges.
The new policy is expected to save, on average, £15,000 in Section 106 charges per home in England – with some councils charging up to £145,000 on single properties.
Pickles said: “Small builders are being hammered by charges, which have undermined the building industry, cut jobs and forced up the cost of housing.
“By getting rid of these 5 and 6-figure charges, we will build more homes and help provide more low-cost and market housing.”
The £525m Builder Finance Scheme will be extended to unlock construction on micro-building sites between 5 and 15 homes.
Previously the fund was only available to stalled housing developments of 15-250 homes.