The government has decided to ban the use, production, purchase and stockpiling of cluster bombs under an international convention agreed three years ago.
The cabinet is also proposing an amendment to the law on war materials, including a ban on the direct and indirect funding of outlawed munitions, according to a foreign ministry statement on Monday.
Parliament is to discuss the issues at a later date.
Campaigners have accused 16 Swiss companies, including the two big banks UBS and Credit Suisse, of financing cluster bombs and parts despite the entry into force of an international treaty.
However the two banks last week rejected the allegations saying a process of withdrawing from investments is underway.
The Convention on Cluster Munitions has been signed by more than 100 countries so far, while nearly 60 others, including Germany, France and Britain, have ratified it.
The Swiss armed forces will have to destroy artillery ammunition within eight years if Switzerland signs the accord that came into force last August.
The foreign ministry says Switzerland spends about SFr16 million ($19.1 million) annually on humanitarian projects for mine clearing, notably in Laos.