Chancellor Olaf Scholz's cabinet said Berlin would pull its troops out of the West African country over the next 12 months.
"Whether we want it to or not, what happens in the Sahel affects us," Foreign Minister Annalena Baerbock said in a statement.
"We are reorganising our engagement in the region and will let our participation in (the UN mission in Mali) MINUSMA run out in a structured fashion over the next 12 months."
MINUSMA was created in 2013 to help stabilise the country as it battled a jihadist insurgency.
Germany announced last year that it planned to withdraw its troops, who currently number 1,100, from the mission by May 2024.
The decision has now been enshrined by the governing coalition.
It came after the German army, known as the Bundeswehr, had repeatedly run into operational problems with the ruling junta.
The Sahel state has been battling a security crisis since jihadist and separatist insurgencies broke out in the north in 2012.
It has since August 2020 been ruled by a military junta, which broke a long-standing alliance with France and other Western partners in the fight against jihadism.
There had also been growing tensions between the UN mission and Mali's military rulers following the alleged arrival of Wagner operatives from Russia to bolster government forces.
Mali received shipments of Russian military supplies in March and August 2022, and again in January 2023.
"Apparently the government in Mali has been unwilling for a while to allow MINUSMA to fully carry out its duties," a German government source said.
German Defence Minister Boris Pistorius pledged last month on a visit to the region that Berlin would stay committed to security in the Sahel after the planned withdrawal of its troops from Mali.
The German cabinet in March agreed for up to 60 German soldiers to participate in the new EU-led military mission EUMPM, based in Niger.
Mali's long-running insurgency has claimed thousands of lives and forced hundreds of thousands from their homes.
In claims disputed by experts, the junta says it has routed jihadists over the past year. But recently it has suffered a series of bloody attacks.
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