The plan includes more composting, more household waste recycling centres and facilities to separate the remaining waste for further recycling and energy recovery. With these changes, the authority aims to raise recycling rates from 18.5% to 45% by 2020. It also wants to cut its landfill waste by 60%, which is equivalent to nearly half a million tonnes.
Parliamentary Under Secretary for Climate Change, Biodiversity and Waste Joan Ruddock said: "Merseyside's scheme sets challenging targets, and I am pleased to see them make such an ambitious commitment.
"PFI agreements like this one provide an incentive for local authorities and industry to work together to achieve our goals for cutting waste, reducing its environmental impact and making better use and reuse of the waste we create."
Chairman of Merseyside Waste Disposal Authority Councillor Kevin Cluskey said: "We are embarking on one of the biggest waste procurement projects in the country and this will help to significantly improve our region's waste management facilities."
Merseyside is one of 21 authorities to benefit from £900m cash injections from waste PFI funding since 1997.