The Victorian government has unveiled a multi-million dollar package to transform footpaths and streets into open-air dining areas after lockdown.

It comes as the state recorded seven deaths and 35 coronavirus cases on Monday – its lowest daily increase for almost three months.

Premier Daniel Andrews on Monday announced $290 million in funding, including $100 million for sole traders who will remain closed or heavily restricted as the state begins to reopen.

About 33,000 sole traders who work in areas such as accommodation and tourism, media and film production, creative studios, private museums and galleries will be eligible for $3000 grants. Gym owners will also be eligible.

Another $100 million will go towards a Melbourne City Recovery Fund to help small to medium businesses set up outdoors, fund COVID-safe events and cultural activities and make physical improvements to the city streetscape.

It will be jointly funded by the state government and the City of Melbourne, whose Mayor Sally Capp last week described the CBD as “on its knees, with business hanging on by a thread”.

The government drew inspiration from New York’s Open Restaurants initiative, which has involved footpaths, laneways and streets being temporarily transformed into dining areas.

“They have been able to get their hospitality sector back to something approaching normal, faster than what would otherwise have been the case because they have used the footpath, curbside parking … and turned it into pop-up cafes, restaurants, bars,” Mr Andrews said.

“That is what we will do. We will change the way the city operates and the suburbs and regional cities.”

The premier said the risk of coronavirus infection was low at restaurants.

“We are often at our greatest risk when we’re at a mate’s place having dinner because there is no time limit, there is no waiter making sure we keep our distance, there is not necessarily all the kind of infection control, cleaning tables, cleaning common areas,” he said.

Jobs Minister Martin Pakula said the changes would “utterly transform the city, and not just for this summer”.

“It will create a new alfresco environment for CBD dining which will, I suspect, be enjoyed for many summers hence,” he said.

Businesses outside the CBD with a payroll under $3 million can apply for grants of up to $5000 to pay for equipment such as umbrellas, outdoor furniture and perspex screens.

About $29.5 million will be provided to local councils to streamline a permit system.

The premier urged councils against “bureaucratic delays”.

It follows a $3 billion suite of business cash grants, payroll tax deferrals and fee waivers announced on Sunday.

Under the state government’s roadmap, Melbourne’s bars, cafes and restaurants can open for outdoor dining from October 26.

Hospitality in regional Victoria, which moved into eased restrictions on Monday, is expected to reopen as early as this week.

“Hopefully we can have very good news for regional Victoria tomorrow,” the premier said.

Melbourne will move to its next step of reopening on September 28 if the 14-day average if the average falls to 30-50. It is currently at 54.4.

The city took its first tentative steps out of lockdown on Monday, with those living alone or single parents allowed to have one other visitor as part of a “social bubble”.

Outdoor exercise is now two hours per day and the curfew will start an hour later at 9pm.

The state’s latest virus victims include one man aged in his 70s, one man and one woman in their 80s and three men and one woman in their 90s, bringing the state’s toll to 729 and the national figure to 816.

The deaths are all linked to outbreaks in aged care facilities, where 513 cases remain active.

There are 122 Victorians in hospital with coronavirus, including 12 in intensive care.