Germany cut its tax relief package for small and medium-sized companies to 3.2 billion euros ($3.45 billion) annually, government sources told Reuters on Friday.

The package is aimed at unleashing new investment amid weak foreign demand and high interest rates.

The government's Growth Opportunities Act passed the lower house of parliament last November. However, the law got stuck in a parliamentary mediation committee, facing opposition in the Bundesrat, the legislative body that represents the 16 German states at the federal level

The states and municipalities would have to shoulder the bulk of the expected tax revenue shortfall and therefore they opposed the law.

At 3.2 billion euros, the tax relief would be about half of what was originally planned.

($1 = 0.9289 euros) (Reporting by Maria Martinez and Christian Kraemer Editing by Miranda Murray)