German high court scrapped "stove bonus" for parents who do not leave their one to three-year-olds in daycare.
The measure, which originated in conservative Bavaria state, had drawn fire for promoting the idea of mothers whose place is at home and for depriving young immigrant children of a German-language learning environment.
The 150-euro ($160) monthly payments for families with children aged 15 to 36 months who don't visit a creche has been paid to some 450,000 families since it was introduced two years ago.
Judges at the federal constitutional court unanimously overturned it, arguing that the national government had overreached in weighing into family policies that are the purview of the 16 state governments.
The payments may be continued only in hardship cases where families have come to rely on the money, ruled the court based in the southwestern city of Karlsruhe.
Chancellor Angela Merkel's coalition government introduced the payments at the urging of her Bavarian allies the Christian Social Union (CSU), which has a firm grip on power in the mainly rural and Catholic southern state.
States ruled by the center-left Social Democrats (SPD) and ecologist Greens have opposed what has also been mocked as the "mother hen subsidy".
The legal challenge was brought by the SPD-ruled city state of Hamburg in Germany's mainly Protestant north.
A leading member of the Greens party, Katrin Goering-Eckardt, welcomed the demise of what she called a nonsensical measure that promoted an outdated family image, saying the money could now pay for "well-equipped day care centres with well-trained and well-paid teachers".
In Bavaria, CSU leader Horst Seehofer said his state government would keep paying the subsidy and demanded the federal government compensate it for the expense.
The "stove bonus" was the second CSU pet project to run into trouble recently, following an EU challenge to a Bavarian-inspired plan to charge foreign motorists for using Germany's famed Autobahn highways.