The decision by the junior partner in the Federal Republic of Yugoslavia was taken to protect the coastal republic from the economic turmoil of Serbia, which has been isolated since President Slobodan Milosevic's crackdown against Kosovo. Montenegro threatened in August to leave the federation if it did not get more autonomy.
The opposition Socialist party, which is headed by Momir Bulatovic, a protege of Mr Milosevic's and Yugoslav's Prime Minister, called it "a classic act of secession".
But the government said it was not the prelude to a split. "I believe this mechanism will protect us from [Belgrade's] destructive monetary policy which is threatening to turn into chaos," Montenegro's Prime Minister, Filip Vujanovic, told parliament. "I know that politically it will be explained as a destructive move towards separation, something this decision has nothing to do with," he said.
The republic's finance minister, Miroslav Ivanisevic, said that the change would be implemented the day after it was published in the official gazette, so basic goods such as bread, milk, petrol and power would be priced in marks from Thursday.
"Alongside the Yugoslav dinar, the German mark will be used as a means of payment in Montenegro," Mr Ivanisevic told a news conference.
Officials in the Yugoslav capital, Belgrade, were not available for comment on the decision, which is bound to cause consternation in Serbia even though Montenegro's 650,000 population is dwarfed by its 10 million citizens.
The German currency fetches almost 17 dinars on Yugoslavia's black market compared with an official rate of six, and many companies as well as individuals already flout a ban by the federation's central bank on its use in transactions. (Reuters)