Successful local authorities will sign a Pothole Pledge as a condition of the funding, setting out the number of potholes they will have repaired by March 2015.
Transport Secretary Patrick McLoughlin said: “Part of this government’s long term plan is investing in our roads. Potholes are a menace for all road users which is why this extra funding is provided in addition to the £10 billion already committed for councils for road maintenance.
“I want councils to rise to the challenge and to reward councils who come up with new and better ways of making repairs quickly and effectively.
“With this new pothole fund councils will need to clearly set out the scale of the work they are doing, and local communities can have certainty that the money is being spent fixing potholes on their local roads.”
The £168m fund, announced in the Chancellor’s March Budget statement, is enough to fix more than three million potholes.
It is in addition to the £10bn for local roads maintenance that the Department for Transport is already providing to councils in England between 2010 and 2021.
The guidance for the application process for local authorities is now available on the gov.uk website. Councils have until 4pm on May 22 to submit a bid to the Department for Transport.
A track record of best practice or proposals for innovative solutions will be recognised as part of the bidding process, potentially resulting in increased funding for those councils.
Through its Highways Maintenance Efficiency Programme, the department also provides clear guidance to councils to make the most of available funds and ensure they use the money efficiently.