The money approved Wednesday does not include costs for hosting the high-level delegation from the North, including President Kim Jong Un's younger sister Kim Yo Jong and its ceremonial head of state, Kim Yong Nam.
He did not elaborate and may have been referring to a remark by US Vice-President Mike Pence on his flight back to Washington from the Games.
The Unification Ministry said the funds will come from the government budget for inter-Korean cooperation and will cover housing and food for the cheering squad, orchestra, taekwondo athletes, journalists and other members of the more than 400-strong delegation. "I see that this symbolic game can improve relations with the North".
Tuesday's report said Kim Jong-un gave "important instructions" for possible measures to maintain the atmosphere of conciliation and dialogue, without offering more details.
On Saturday, Ms Kim handed over a letter from her brother to President Moon, inviting him to visit Pyongyang.
The administration has always been hostile to the North and critical of its participation in the Games.
She headed the North's delegation and has now returned home.
"I didn't avoid the dictator's sister, but I did ignore her".
Presence, not presents, for Valentine's Day
If you know she is more modest it might not be the best idea to gift her with lingerie that she would feel uncomfortable wearing. I've never even been on a date, so when I say I love Valentine's Day , I'm not just saying it because I'm in love with someone.
'After that a few heavies rushed over really p***ed off and I suspect they were North Korean delegates, just by the way they were dressed.
In 2002, for the Asian Games in the port city of Busan, it approved a 2.12-billion fund ($1.9 million), of which it paid 1.35 billion won ($1.25 million) for the cost of a 650-member North Korean delegation.
Relaxed, smiling and happy, she charmed the media. "I guess everybody has a cause, you know?"
Any summit between the two still-officially warring Koreas would be a coup for Moon, who has been pushing for a diplomatic solution to the standoff over North Korea's nuclear and missile programs.
What does the United States make of the North's overtures?
"The point is, no pressure comes off until they are actually doing something that the alliance believes represents a meaningful step toward denuclearization", the Post quoted Pence as saying.
The US is also committed to maintaining maximum pressure on the North until Pyongyang accepts the precondition.
North Korea has yielded cleverly to the global sanctions by employing the use of months long quiet diplomacy with South Korea and above all by using its "charm offensive" of sending cheerleaders to the Olympic event.