The South and North Exchange and Cooperation Promotion Council passed 2.86 billion won (USD 2.64 million), which will be spent from the government budget to pay the Olympic bills for North Korea.
The approved funding will cover the costs of North Korean art troupe, cheerleaders, athletes and taekwondo demonstration team members who participated in the Pyeongchang Winter Games, the Yonhap news agency reported.
"It is aimed at providing financial support for the North Korean delegation's visit to South Korea and for carrying out cultural cooperation projects (between the North and South)," the South Korean Unification Ministry said in a statement.
"The issue of whether to bankroll the North's participation in the Pyeongchang Paralympics in March will be determined during a separate council meeting in the future", the ministry added.
Unification Minister Cho Myoung-gyon, who chaired the council, hailed North Korea's participation in the Pyeongchang Winter Games as a "milestone that opened up the door for building peace on the Korean Peninsula".
"The North Korean delegation's participation in various forms is serving as a pretty good opportunity to (achieve) Seoul's goal to hold an Olympics of peace and becoming an important chance for harmony that improves the inter-Korean relationship and opens up the door for peace on the Korean Peninsula," Cho was quoted as saying.
"With the dispatch of a high-level delegation, an art troupe and a cheering squad, the Olympics have become a chance for the North to communicate with the international community. This could further pave the way for (inter-Korean) discussion to build and sustain peace on the peninsula," he added.
North Korean leader Kim Jong-un on Tuesday pledged efforts to continue the reconciliation with its arch-rival South Korea, as relations between the two countries have warmed rapidly over the last few weeks.
A high-level delegation had arrived in Pyeongchang in South Korea for a three-day visit earlier that was led by the North Korean ceremonial head of state, Kim-Yong nam. The delegation also included his younger sister, Kim Yo-jong, who was the "special envoy" to Kim.
Yo-jong's visit to South Korea was the first visit by a member of the ruling Kim family ever since the Korean War ended in 1953.
North Korea on Saturday proposed an inter-Korean summit to be held in Pyongyang and invited for the same.
There have been two inter-Korean summits so far, one in 2000 and an another in 2007. If President Moon accepts the invitation, then this would pave the way for what could be the third meeting of the inter-Korean summits between the two countries.
The North Korean delegation's visit to South Korea was the first trip since August 2009, when a high-level North Korean delegation attended the funeral of former South Korean President Kim Dae-jung, who held the first-ever inter-Korean summit with then North Korean leader late Kim Jong-il in 2000. (ANI)