Beijing, where more than 5 million people own a vehicle, is often hit by extended bouts of choking, acrid smog, with heavy industries and car use among the main causes.
Under the new scheme, cars with odd and even licence plates will be banned from city's streets on alternate days whenever air pollution persists for three days, Xinhua news agency reported.
A four-coloured rating has been devised under the system for assessing Beijing's air quality, with red deemed the worst.
Thirty per cent of government cars of various levels will be off the roads, and schools will be suspended during such periods, the report said.
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Two million more people would be relying on public transport system, whenever the red alert is sounded.
"The city will increase bus frequencies by 21,000 to 25,000 over all, and the subway operation time will be extended by half an hour in the evening," said Fang Li, Deputy Chief of Beijing's environmental protection bureau.
As per Environmental Protection Ministry, air with an Air Quality Index (AQI) of over 300 is defined as "serious pollution" and an AQI between 201 and 300 as "heavy pollution.