Under the deal, a commission will study the congestion charge, while also looking into other ways to reduce traffic on the city's bustling streets.

Even if the commission recommends adopting plans unveiled by Mayor Michael Bloomberg earlier this year to charge motorists to enter downtown Manhattan, the proposals will still require state approval.

"This agreement to move forward with congestion pricing marks a critical milestone in our efforts to make PlaNYC a reality," an upbeat Bloomberg said in a statement.

"We will begin immediately to prepare for the installation of needed equipment to make our traffic plan a reality," he added.

Bloomberg had criticized state officials on Tuesday after they failed to reach agreement on the city's plans in time for a deadline to apply for 500 million dollars in federal transport funding.

But state officials said Thursday the federal money was still available, despite the official deadline passing.

Bloomberg first put forward the congestion charging plan in April under an ambitious raft of environmental proposals labelled "PlaNYC" and based on similar charging schemes in place in London and Stockholm.

If introduced, the plan would involve a charge of eight dollars for cars and 21 dollars for trucks to enter lower Manhattan on week days.

"I am certain that through our work with the commission, our traffic plan will be implemented expeditiously," Bloomberg said Thursday.

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