Councils that back "fracking" will get to keep more money in tax revenue as part of an "all-out" drive to promote drilling, Prime Minister David Cameron has said.
Mr Cameron said English local authorities would receive all the business rates collected from shale gas schemes - rather than the usual 50%.
The government says projects will support 74,000 jobs and reduce bills.
But Greenpeace accused ministers of trying to "bribe councils".
Mr Cameron's announcement comes as French company Total confirmed plans to invest about £30m to help drill two exploratory wells in Lincolnshire. It is the the first major energy company to invest in fracking in the UK.
The British Geological Survey estimates there may be 1,300 trillion cubic feet of shale gas present in the north of England.
But the process to extract it - called fracking - has led to protests, with environmentalists fearing the technique could cause small earth tremors, water contamination and environmental damage.
The BBC's Danny Shaw is reported that protesters at the Barton Moss fracking facility in Greater Manchester have climbed on to to lorries entering the site.
Fracking, short for "hydraulic fracturing", involves drilling deep underground and releasing a high-pressure mix of water, sand and chemicals to crack rocks and release gas stored inside.
'Security'Whitehall officials said the business rates commitment would mean councils keeping up to £1.7m extra a year from each fracking site.
"Start Quote
End Quote Michael Fallon Energy MinisterWe expect 20 to 40 wells to be drilled in exploration over the next couple of years and I think it's very important that local communities see some of the benefit"
Separately, the mining industry has pledged to give communities £100,000 for test drilling and a further 1% of the revenues if shale is discovered, they added.
Mr Cameron said: "A key part of our long-term economic plan to secure Britain's future is to back businesses with better infrastructure.
"That's why we're going all-out for shale. It will mean more jobs and opportunities for people, and economic security for our country."
Energy Minister Michael Fallon said councils could benefit by up to "£10m per wellhead" if shale gas was successfully extracted in their communities, through the 1% levy on revenues.
This would be on top of the business rates they would receive from companies involved in drilling.
"We want local councils and local people to benefit from this exploration. We expect 20 to 40 wells to be drilled in exploration over the next couple of years and I think it's very important that local communities see some of the benefit," he told Radio 4's Today programme.
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How fracking recovers natural gas from shale
The Local Government Association, which represents councils in England, said the announcement was a "step in the right direction" but any packages had to "fairly remunerate" those affected.
"Given the significant tax breaks being proposed to drive forward the development of shale gas and the impact drilling will have on local communities, these areas should not be short-changed by fracking schemes," said a spokesman.
"One percent of gross revenues distributed locally is not good enough; returns should be more in line with payments across the rest of the world and be set at 10%.
"Start Quote
End Quote Lawrence Carter GreenpeaceThis is a naked attempt by the government to bribe hard-pressed councils into accepting fracking in their area."
"The community benefits of fracking should be enshrined in law, so companies cannot withdraw them to the detriment of local people."
Responding to the LGA's call for 10% of revenues, Mr Fallon said: "This is something obviously the industry will keep under review."
For Labour, shadow energy minister Tom Greatrex said it was right for communities to share in the potential rewards from shale gas, but he called on the government to "get its priorities right".
"Only by fully addressing legitimate environmental and safety concerns about fracking with robust regulation and comprehensive monitoring will people have confidence that the exploration and possible extraction of shale gas is a safe and reliable source that can contribute to the UK's energy mix," he said.
Conservative MP Ben Wallace described the government's offer on shale gas as "crumbs from the table".
Despite the business rates pledge, the Treasury would still keep 63% of the tax raised from each shale site, said the MP for Wyre and Preston North in Lancashire, where there is thought to be a substantial amount of shale gas.
Friends of the Earth's Jane Thomas argued that the new policy "highlights the depth of local opposition to fracking and the desperate lengths ministers are prepared to go to try and overcome it".
She argued: "This move raises potentially serious concerns about conflicts of interest, if councils that benefit from this money are also the ones who decide on planning applications from fracking firms in the first place.
"The government should be encouraging the development of Britain's huge renewable power potential, instead of coming up with new incentives that keep the nation hooked on climate-changing fossil fuels."
'New North Sea'Lawrence Carter of Greenpeace added: "Cameron is effectively telling councils to ignore the risks and threat of large-scale industrialisation in exchange for cold, hard cash.
"But the proposal reveals just how worried the government is about planning applications being turned down.
"Having had their claims that fracking will bring down energy bills and create jobs thoroughly discredited, the government is now resorting to straight up bribery to sell their deeply unpopular fracking policy."
The Institute of Directors welcomed the move on business rates, with chief economist James Sproule arguing: "Investment from Total is a vote of long-term confidence in the UK shale industry, and is a welcome sign that the government is creating the conditions necessary to maximise the potential benefits of a new domestic energy source.
"The wider benefits are clear. Shale gas development could create tens of thousands of jobs, reduce imports, generate significant tax revenue and support a resurgence in British manufacturing.
"In short, shale gas could be a new North Sea for Britain."
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