Politicians and industry leaders announced the ambitious plan on Monday.
So far, 38 farms have been affected by the cow disease. They say it will cost hundreds of millions of dollars, and, if successful, would be the first time an infected country has eliminated Mycoplasma bovis.
However, many healthy cattle will also be killed in the cull. They say numerous cows will be slaughtered at processing plants and used for beef, but some cows will have to be killed and buried on the farms or dumped in approved landfills.More news: Raging Floodwaters Roar Through The Streets Of Maryland Town -- Again
Since it was first discovered, 26,000 cows have been culled, and the disease is classified as "active" on 37 properties. It has 6.6m dairy cows.
Authorities are investigating how the bacteria arrived in New Zealand despite its strict biosecurity controls.
The decision was a "tough call" but had to be made because the alternative was the spread of the disease across the country, Prime Minister Jacinda Ardern said.
About 24,000 cows have already been killed in recent months and at least 128,000 more will have to be culled, most over the next year or two. The country will spend 886 million New Zealand dollars (Rs 4,150 crore) over two years on the effort to eradicate the disease.More news: Las Vegas goes #nocaps before Cup Final
New Zealand is the world's largest exporter of dairy products, and produces 3% of the world's milk.
The government would contribute about NZ$591 million to the eradication program, while the rest would be borne by industry bodies and farmers, Ardern said.
"The majority of animals that we do cull in New Zealand are all healthy. A quarter of them are being wiped out in the next 10 years", he told Newshub.More news: Fairmont in Jasper says royal newlyweds are not booked for honeymoon