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It will also seek to address the problem of households inadvertently contaminating council recycling collections, through a new education campaign to help people better understand what can and can’t be recycled.

It is hoped the campaign will ultimately prevent 40,000 tonnes of recyclables a year going to landfill unnecessarily.

Victoria’s Environment Minister, Lily D’Ambrosio said the government was delivering a new plan for the recycling industry that would reduce waste and build a more resilient recycling system in Victoria.

“This plan will create a more stable and productive recycling sector, improving the quality of recycled materials and developing new markets for them,” Ms D’Ambrosio said.

As part of the plan, an extra $8.3 million will go to the government’s Resource Recovery Infrastructure Fund, which supports council and industry-led projects that will improve the quality of up to 100,000 tonnes of recycled materials.

The government last month announced grants from the infrastructure fund for 13 recycling projects, including $500,000 towards a $5 million state-of-the-art composting tunnel system in Morwell, able to divert 18,000 tonnes of organic waste from landfill each year; $500,000 towards a new waste-to-energy plant at the Maddingley brown coal mine near Bacchus Marsh; and $130,000 towards a project in Mildura to recycle plastic into timber replacement products.

A further $800,000 will go towards helping charities such as op shops deal with dumped and unrecyclable goods.

Charities had feared they were about to lose the $800,000-a-year subsidy, drawn from the state’s landfill levy relief fund, after it was not renewed in May’s state budget.

Advocacy group Environment Victoria said the Victorian government had demonstrated it was serious about resolving the state's recycling crisis.

"Victoria is in the midst of a recycling crisis," public policy and advocacy manager Dean Rizzetti said. "We have been sending mountains of recyclable material to China, but new rules have closed the door.

"Now we need to develop solutions here in Victoria, rather than sending the mess offshore."

The waste management industry immediately endorsed the investment, saying the government's commitment to ramp up its procurement of recycled materials would give businesses the signal they needed to invest.

"The fact that the government is saying that they are going to purchase recycled products themselves is exactly what we are looking for, because we need someone to take leadership in this space," said Gayle Sloan, chief executive of the Waste Management Association of Australia.

The $37 million plan includes a previously announced $13 million temporary relief package announced in February for councils and industry to support the ongoing kerbside collection of household recyclable waste.