The financing is being offered by the Department for Transport (DfT) in a bid to make road journeys faster and safer with a range of devices and innovations.
These include technology that allows vehicles to communicate with each other and with roadside sensors to give drivers up-to-the-minute traffic data.
Further proposals include a system that sends information about weather directly to vehicles, which could help drivers to plan for adverse conditions and boost road safety.
An earlier version of the funding scheme also saw work carried out on a smartphone app that could take some of the stress out of parking.
The programme, developed by Westminster Council in central London, directs drivers to empty parking spaces before taking payment automatically for using the spot.
Launching the funding scheme, Roads Minister Andrew Jones said the money could be put towards improving the all-round driving experience.
“I want to deliver better, more enjoyable journeys and this £2 million fund will help councils invest in new technology to enhance the experience of driving,” he said.
“Britain has a proud history of innovation and I am delighted that councils will be able to use this money to develop systems to make journeys easier and safer.”
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In a statement, the DfT added that bids are expected to range from between £30,000 and £300,000, with councils to contribute 5% of their project’s cost.
The launch of the funding initiative comes at an exciting time in the development of motoring technology and gadgets.
Manufacturers are currently focusing heavily on building cars that can drive themselves.
Self-driving vehicles look set to take some of the pressure away from drivers by changing lanes, using the accelerator, braking and more autonomously.
Huge leaps forward are also being made with connected services, such as those which let drivers link their smartphones to a car’s infotainment system.
In the future, this technology could also be used by motorists to turn on their vehicle in the morning and even heat up the cabin on cold mornings.
The DfT’s scheme closes at the end of September and is intended for projects that could be completed by March 2018.