A major outcome of this is reduction in the demand for oil in China, a country which is now the world's second-largest oil consumer after the United States.
The official news agency Xinhua reports that Xin Guobin, vice-minister of industry and information technology, announced the plans over the weekend, saying these measures will profoundly change the manufacturing sector.
"The ministry has also started relevant research and will make such a timeline with relevant departments". The country said it would ban production of gas-powered vehicles by 2040.
Will China become the next country to ban conventional diesels and petrols? Liu Zhijia believes a deadline after 2040 is a reasonable one given the size of China's passenger vehicle market, leaving carmakers enough time to adjust.
China's interest in going all-electric reflects a fast-growing global trend towards banning the sales of new internal combustion vehicles.
China produced and sold more than 28 million vehicles past year, according to the International Organisation of Motor Vehicle Manufacturers.
Last year, China passed the United States as the biggest electric auto market.
With an enormous population and industrial output, China's plan to ban fossil fuel auto sales in the near future could be game-changing. Making the environment sustainable is definitely a motivator for the local authorities to ban fossil fuel powered vehicles in the future.
Xin said any resistance to change will mean "turbulent times" for vehicle companies in coming years. However, the news boosted stocks in China's new energy auto firms.
The rules say at least one fifth of vehicles sold in China by 2025 must be plug-in hybrids or fully electric.
GM, Volkswagen, Ford, Daimler and many other automakers also have plans to beef up NEVs production. India plans to have only electric cars on its roads by 2030, and Norway, who was the first to make such an announcement in June 2016, plans to be selling only electric vehicles by 2025. But for now, the Chinese government didn't define a target date, as done by both France and the UK.