Germany’s cabinet has approved a plan to liberalise rules on cannabis, setting the scene for the European Union’s most populous member to decriminalise possession of limited amounts and allow members of “cannabis clubs” to buy the substance for recreational purposes.

The legislation is billed as the first step in a two-part plan and will still need approval by parliament.

But the cabinet’s approval is a stride forward for a prominent reform project of Chancellor Olaf Scholz’s socially liberal coalition, though significantly short of the government’s original ambitions.

The bill, which the government hopes will take effect at the end of this year, foresees legalising possession of up to 25 grams (nearly one ounce) of cannabis for recreational purposes and allowing individuals to grow up to three plants on their own.

German residents who are 18 and older would be allowed to join non-profit “cannabis clubs” with a maximum 500 members each. The clubs would be allowed to grow cannabis for members’ personal consumption.

Individuals would be allowed to buy up to 25 grams per day, or up to 50 grams per month – a figure limited to 30 grams for under-21s.

Membership in multiple clubs would not be allowed. The clubs’ costs would be covered by membership fees, which would be staggered according to how much cannabis members use.

The government also plans a ban on advertising or sponsoring cannabis and the clubs, and consumption will not be allowed within 200 metres (656ft) of schools, playgrounds and sports facilities, or near cannabis club premises.

Officials hope their plan will help protect consumers against contaminated products and reduce drug-related crime.

Health Minister Karl Lauterbach said he expects the system to produce “very competitive” prices, “so we think that we can push back the black market well with these rules”.

At present, “we have rising consumption, problematic consumption”, Mr Lauterbach told reporters. “It simply couldn’t have carried on like this.”

The centre-right opposition argues that the government is pressing ahead with legalising a risky drug despite European legal obstacles and expert opinion.

An organisation representing German judges says the plan is likely to increase rather than decrease the burden on the judicial system and could even increase demand for black-market cannabis.

Some advocates of legalisation are not happy either.

Oliver Waack-Jurgensen, who heads the Berlin-based High Ground “cannabis social club” founded last year, said: “What we’re getting from the health minister is overregulation, a continued stigmatisation of cannabis users and a much too tight regulatory corset, which simply makes it impossible for many, many (cannabis clubs) to work.”

The government has said it plans to follow the new legislation by mapping out a second step – five-year tests of regulated commercial supply chains in select regions, which would then be scientifically evaluated.

That is far short of its original plan last year, which foresaw allowing the sale of cannabis to adults across the country at licensed outlets. This was scaled back following talks with the EU’s executive commission.

Mr Lauterbach has said Germany does not want to emulate the model of the neighbouring Netherlands, which combines decriminalisation with little market regulation. He has said Germany hopes to set an example for Europe.

Dutch authorities tolerate the sale and consumption of small amounts of the substance at so-called coffee shops but producing and selling large amounts of it, necessary to keep the coffeeshops supplied, remains illegal.

Amsterdam, long a magnet for tourists wanting to smoke cannabis, has been cracking down on coffee shops.

The Dutch government, meanwhile, has launched an experiment it says aims to “determine whether and how controlled cannabis can be legally supplied to coffee shops and what the effects of this would be”.

Approaches elsewhere in Europe vary. In Switzerland, authorities last year cleared the way for a pilot project allowing a few hundred people in Basel to buy cannabis from pharmacies for recreational purposes.

The Czech government has been working on a plan similar to Germany’s to allow sales and recreational use of cannabis, which is not finalised.

Denmark’s capital, Copenhagen, has proposed legalising cannabis but has has been turned down by parliament. France has no plans to liberalise its strict cannabis rules.