The decision by the Israeli Prime Minister Benjamin Netanyahu's far-right cabinet will see some 50 million Israeli shekels ($12.8m) allocated to "strengthen" the Jewish-only settlements.
The money will be allocated over three years and be designated to a variety of issues, including social, education and security services, and come from the budgets of the relevant ministries.
Kiryat Arba is a large settlement near al-Khalil (Hebron), the largest Palestinian West Bank city, which is also host to several hundred Jewish settlers in a tightly guarded enclave, Al Jazeera reported on Monday.
The settlers live in the heart of a Palestinian area and are protected by thousands of Israeli soldiers, while local Palestinians endure restricted movement due to the military checkpoints in and around al-Khalil's historic Old City.
The al-Khalil area settlers have been affected by the recent wave of violence that has rocked Israel and the occupied Palestinian territories since last October.
At least 214 Palestinians, 34 Israelis, two Americans, an Eritrean and a Sudanese have been killed.
Israeli settlements in the occupied West Bank are considered illegal under international law and major stumbling blocks in negotiations between Palestinians and Israelis.
Between 2009 and 2014, Israeli settlements expanded by 23 percent in the West Bank, including East al-Quds (East Jerusalem). Upwards of half a million Jewish Israelis already live in more than 150 Jewish-only settlements across the West Bank and including East al-Quds.
The United States, the European Union and many others in the international community have called for a halt to settlement building.
Netanyahu's cabinet is considered to be the most right-wing in Israel's history, and key members of his cabinet are strong supporters of settlement building and opponents of a Palestinian state.
A similar decision, allocating 70 million shekels ($18m) to a variety of settlements, was announced last month. Two officials said Sunday's decision was separate.
Also on Sunday, Israeli forces arrested at least 16 Palestinians in occupied including East al-Quds and the rest of the West Bank.
During clashes with Palestinians with Sair, a blockaded al Khalil-area village, Israeli forces shot and injured at least five people with rubber-coated steel bullets.