The decision, taken at a meeting presided over by Chief Minister Arvind Kejriwal on Friday, will not apply to CNG-driven buses, taxis and auto-rickshaws but will also cover vehicles entering Delhi from other states.
The sweeping move - like the one taken in Beijing in 2013 - will apply to a large bulk of the some nine million vehicles registered in Delhi, where about 1,500 new vehicles are added every day.
Delhi's vehicular population - which cause choking jams on all weekdays - includes some 2.7 million cars.
The Delhi government has also decided to shut down south Delhi's Badarpur power plant, one of the coal-based plants of the NTPC.
The government will also launch a web-based app which people can use to report about polluting vehicles in the capital.
The decisions came a day after the Delhi High Court said that the national capital was like a gas chamber, and sought immediate action from the central and Delhi governments.
According to the Central Pollution Control Board, the air quality of Delhi is said to be "very poor" with an air quality index of 331.