NATO chief Jens Stoltenberg on Thursday hailed German plans to increase defence spending by 80 percent by 2024 as "a step in the right direction" amid US demands for Europe to pay its way.

US President Donald Trump has repeatedly lashed European allies for failing to meet a commitment to spend two percent of GDP on defence by 2024, with economic powerhouse Germany coming in for particular criticism.

Germany's announcement that it is increasing its defence budget looks to have brought some relief in a row that threatens to dominate a summit of NATO leaders next month.

"I welcome the fact that Germany has stopped the cuts... and also (has) plans to increase defence spending by 80 percent over a decade," Stoltenberg said as he arrived for a gathering of all 29 NATO defence ministers in Brussels.

"This is steps in the right direction, I welcome them and it is part of a pattern we now see across Europe and Canada, where allies are spending more."

As an increasingly bitter transatlantic trade spat hung over the meeting, Stoltenberg announced that European NATO members and Canada are on course to increase their defence spending by 3.82 percent this year -- the fourth consecutive annual rise.

Over the last four years, Europe and Canada have spent an extra $87.3 billion on defence, according to NATO figures.

Chancellor Angela Merkel indicated on Wednesday that German defence spending would rise to 1.5 percent of GDP by 2025.

While still short of the magic two percent, this would still represent an 80 percent hike over a decade.

In the short term, Berlin plans to boost its military budget by three billion euros to 41.5 billion euros ($49 billion) next year.

Pentagon spokesman Eric Pahon echoed Stoltenberg's welcome, saying the US was "encouraged by Germany's effort".

It marks a softening in tone from the tough message brought by US Secretary of State Mike Pompeo to a meeting of NATO foreign minsters in April.

Then the ex-CIA chief said bluntly that Germany was not doing enough to meet the target it had signed up to at the Wales summit in 2014.

'Serious differences'

Currently the US accounts for nearly 72 percent of all defence spending in NATO and only three European countries hit the two percent GDP target -- Britain, Greece and Estonia.

Allliance officials are hopeful that four more will join the list by the July 11-12 summit -- most likely Poland, Romania, Latvia and Lithuania.

German Defence Minister Ursula von der Leyen said Berlin "fully supports the two percent target".

"The Bundeswehr (German army) is growing again, it is being modernised," she said as she arrived for the meeting.

"Next year we will already be at 1.3 percent (of GDP)."

Tuesday's talks came with Washington and Europe at loggerheads over a series of major international issues, from punishing new US tariffs on steel and aluminium to Trump's withdrawal from the Iran nuclear deal and the Paris climate accord.

Stoltenberg has admitted there are "serious differences" within the alliance but insisted all its members remain committed to collective defence.

Away from the funding question, ministers on Thursday signed off on a plan to beef up the alliance's ability to mobilise forces quickly in the event of a crisis, as concern about the threat from Russia shows no sign of abating.

Under the US-led "four 30s" plan, by 2020 NATO will have 30 battalions, 30 air squadrons and 30 warships ready to be used within 30 days to back up existing rapid response forces.

Ministers also approved two new NATO command centres -- one to protect Atlantic shipping lanes, based in Norfolk, Virginia, and another to coordinate troop movements around Europe, located in the southern German city of Ulm.