TLTROs allow banks to borrow money at the low rate of 0.15 percent—or 10 basis points on top of the main refinancing rate of 0.05 percent. The idea behind the plan is that, flush with these new low-interest funds, banks will boost lending to the nonfinancial businesses and help boost the currency union's economy. However, it is unclear if any penalties will be enforced if banks do not pass on the loans to households and businesses.
Around 400 billion euros ($518 billion) should be available overall and must be repaid by the middle of 2016. Analysts said acceptance of the loans was lower than expected, with 255 banks participating. Traders polled by Reuters had forecast that banks would take up 133 billion euros worth of loans.
The amount that banks can borrow is proportional to their current loan book, and there will be another chance for banks to apply for TLTROs in December. A second phase of TLTROs will start in March and run through the middle of 2016.
However, there are fears that the ECB will have to introduce further measures to help kickstart the euro zone's stumbling economy. In the second quarter, the zone's gross domestic product grew by 0.2 percent, compared with 2.5 percent in the U.S., inflation is only 0.3 percent and unemployment is stuck at 11.5 percent.
Read MoreEU bank test results set for late Oct: Sources
"If banks continue to refuse to take the cheap cash on offer in December, then it may force [ECB President Mario] Draghi into full blown-QE where he buys government debt (and not just asset backed securities)," Louise Cooper of Cooper City said in a research note.
The euro traded slightly higher after the announcement at $1.2876.
Earlier in the day, the ECB released details of a new voting rotation system for its Governing Council. The change means that Jens Weidmann, the governor of the German Bundesbank, will sit out the council meetings in May and October next year.
Weidmann has traditionally been critical of ECB aggressive stimulus measures, so his prospective absence increased market speculation the ECB might yet launch a QE program as early as May. European markets surged on the possibility.
Track European markets