The treaty allows a nationwide license model which would permit virtual slots and online poker.
States can develop their own rules for online casino games, but the state lottery monopoly will remain in operation.
The states are looking to set up a regulatory body to issue permits to organise games of chance and enforce laws.
German states agreed the Interstate Treaty on Gambling in 2012, which maintained a state monopoly on lottery, while introducing a total ban on online casino games and limiting the availability of sports betting licences.
The news was announced by Schleswig-Holstein, the state that has had an exemption to the online casino gaming ban that was introduced in 2012.
Ministers are keeping proposals for a monthly deposit limit in the draft treaty; the cap for this will be set by players and can be amended, but will be no higher than €1,000 ($1,109).
