The budget calls for greenhouse gas emissions to be halved in just four years by boosting public transport, adding around 10km of new biking paths and bicycle lanes, and extending the city's bike share programme with more bikes and stations.
The city will also raise tolls for motorists entering Oslo and will slash the number of car parking spaces by 1,300.
Oslo has already announced plans to ban private cars from downtown by 2019.
Council members said that under the city's plan, emissions would be watched as closely as expenditures.
“We'll count carbon dioxide the same way as we count money," Vice Mayor Robert Steen told news agency Reuters.
The budget is a follow-up to the city's approval of a plan that calls for emissions in Oslo to be reduced by 50 percent compared to 1990 levels by 2020. By 2035, the emissions are to be reduced by 95 percent.
Initiatives in the budget will be financed by property tax, and although part of the plan calls for ten percent growth in public transport figures, fares will also be increased.
“The city council proposes to increase the transport operating subsidy by 79.5 million kroner in 2017, and the investment budget will be more than doubled,” transport commissioner Lan Marie Nguyen Berg from the Green Party said.
But public transport passengers will face increased prices from next year, although Berg stressed that the rate increases are not part of the budget.
Transport fares are projected to increase by 4.5 percent next year on top of the normal price adjustments.