Allowances of up to £40 per week are to be piloted to help young people who have "dropped out" to return to education and training.
The pilot schemes encourage out of work youngsters to enter training
The UK has one of the worst records in the industrialised world for people finishing their education at 16.
The Treasury-backed £140m project will support 30,000 youngsters aged 16 and 17 who have left school with few qualifications and are out of work.
The two-year pilot projects will begin in 12 areas of England next spring.
The Chancellor, Gordon Brown, says this is part of the government's drive to establish education as being from three to 18, rather than five to 16.
Leaving age at 18
"Because we are determined to move from one of the lowest rates of participation in education at age 17 in the developed world to one of the highest, we are today announcing new approaches and new support for our most disadvantaged young people," said Mr Brown.
There will be eight pilot schemes for "activity agreements and allowances", where 16 and 17 year olds will be given between £20 and £40 per week, in exchange for a commitment to a "plan to reintegrate them into education or training, including work-based training".
There will be another eight pilot schemes for "learning agreements" for 16 and 17 year olds who have jobs but are not receiving training - with the aim of helping them to get qualifications.
The two types of agreement will be available in Greater Manchester, West Yorkshire, East London and Cornwall and Devon - and activity agreements will be in Greater Merseyside, Central London, Kent and Medway and Tyne and Wear.
Learning agreements will be available in Lancashire, South Yorkshire, Black Country, Essex, Southend and Thurrock.
The agreements will be contracts between young people and an adviser - and will be designed to put teenagers back on the path to educational courses and vocational training.
'Something for something'
The government has already introduced education maintenance allowances which provide up to £30 per week as an incentive for older teenagers to continue in education.
This week, a government consultation document proposed that younger teenagers from low-income families would receive up to £12 per month in support for sports and cultural activities.
The Minister for Children and Families, Maria Eagle, said: "It's vital that we put mechanisms in place to encourage activity rather than inactivity and encourage those in jobs without training to take up learning opportunities to increase their skills."
The plan to provide training for teenagers was announced last year by the Chancellor, as part of a policy to promote a high-skill economy.
At present he said the UK had more unskilled people in the workforce than any other major European Union country.
Young people who stay on to study beyond 16 have a strong chance of going into higher education or professional training.
Universities UK has published research saying that nine out of 10 people studying at the age of 17 continue into higher education.
But compared to international competitors, the UK has experienced a high level of 16-year-olds who leave school with few qualifications and poor job prospects.