Men living in the northwestern Italian town of Varallo will receive 50 euros ($70) for losing 4 kg (9 pounds) in a month, Mayor Gianluca Buonanno said. Women will get the same amount for shedding 3 kg (7 pounds).
If they can keep the weight off for 5 months, they will get another 200 euros ($280), he told Reuters.
"Lots of people are saying, 'I really need to lose some weight but it's really tough.' So I thought, why don't we go on a group diet?" said Buonanno, who said he was about 6 kg (13 pounds) overweight.
The town of 7,500 people started the campaign on Friday and some residents have already signed up, he said.
Around 35 percent of Italians are overweight or obese, according to European Union figures, with waistlines expanding as the country's healthy Mediterranean diet has given way to processed foods rich in fat, sugar and salt.