Limerick City and County Councils are to be merged into a single local authority.
The move will save around €15m, and the money will be ploughed back into driving economic activity in the area.
A new directly elected mayor will also be put in place by 2014 to oversee the water, waste, policing and transport services.
The Government has also decided to push ahead with a directly elected mayor of Dublin with executive powers.
Minister for the Environment Phil Hogan said the decision to merge Limerick City and County Councils may also be adopted elsewhere.