The "vast majority" of households will receive £350 ($475) towards energy bills to “take the sting out of the price increase”.
Chancellor Rishi Sunak told MPs he would cut £200 from all energy bills with a further £150 targeted at supposedly more vulnerable households via a council tax rebate for less expensive homes in the bands A-D.
Households will see the £150 discount on their council tax bill in April and the further rebate of £200 in October off their energy bills.
The latter amount will be paid back in five £40 instalments over the next five years, starting from next April, the chancellor told the Commons.
Read more: UK energy price cap to rise 54% to £1,971
This means 80% of council tax payers in England will get the saving. There will also be £150m for local authorities in England to help lower income households.
Sunak highlighted that the energy bill help only applies to England, Scotland and Wales, because Northern Ireland has its own system. But he added Treasury will provide £150m for Northern Ireland to provide its own support.
The council tax measures only apply in England
Sunak set out his plans to MPs shortly after the energy regulator, Ofgem, announced it was lifting its price cap by more than 50% to just under £2,000 in response to soaring global wholesale gas prices.
The average household energy bill to soar by £693 while Sunak's package equates to £350.
On top of the additional cash and reduction in bills, the Chancellor said he would be extending the warm homes scheme to include more people.
"Just as the government stood behind the British people through the pandemic, so we will help people deal with one of the biggest costs they now face: energy," the Chancellor said.
Labour's Meg Hillier branded Rishi Sunak "the Klarna chancellor" – saying the government's support plan for rising energy bills constitutes a "buy now, pay later" policy.
Labour also pointed out that any help offered by Sunak to cope with rising fuel bills would be wiped out by the tax rises that he is introducing in April, which will add to the household budget squeeze.
A combination of a £12bn national insurance rise and the freezing of income tax thresholds will cost a typical household £600 a year from April.
The chancellor said his plan “is fair, it is targeted, it is proportionate, it is the right way to help people with energy costs”.
The total package comes to £9.1bn, the Treasury said.
Read more: Energy price cap: Who will be hit hardest?
Jamie Maddock, energy analyst at Quilter Cheviot said Sunak announced a 'use it now, pay later' energy scheme.
“It’s no surprise that Rishi Sunak was called into action with an emergency announcement to ease the squeeze for the most vulnerable households. The use it now, pay later scheme will help smooth consumers energy bills over time, and allow people to repay when energy prices are expected to be cheaper. Utility providers will also breathe a sigh of relief. Sky-high energy costs have pushed many firms to the brink, and many others over the edge.
“The Ukrainian crisis will compound the issue further, and our gas supply situation could well get considerably worse.”
Charities and campaigning organisations that represent low-income families say the energy bills rebate package is not enough.
Dame Clare Moriarty, chief executive of Citizens Advice, said: "This is a strange, complicated and untargeted package of measures. It provides some relief for all households come April, but for people on low incomes who need it most there are far easier ways for the government to deliver support.
"If the government is serious about helping families facing the desperate choice between heating and eating it should use the benefits system."
Watch: Rishi Sunak announcement: energy bills to rise by almost £700 as price cap rises