The telecommunications company, Vocus Group, will oversee the roll-out of the 4000 kilometre undersea cable, linking Solomon Islands and PNG with the Australian mainland.
The money will come from the Australian aid budget, with the PNG and Solomon Islands governments required to contribute some of the funding.
By footing the bill, Australia effectively stopped the Chinese company, Huawei, from building the link, as it had originally signed a contract to do so with the Solomon Islands government.