The money would go to the U.S. territory's elections commission for creation of an education campaign and a plebiscite to resolve the island's status, with President Barack Obama specifying that the U.S. attorney general would have to approve the ballot before it goes to voters.
The announcement revived a heated debate in Puerto Rico, with rival factions arguing that the move showed the White House backed them.
Legislators in the opposition pro-statehood party said the announcement meant the White House upheld the results of a recent referendum in which the largest group of voters supported seeking U.S. statehood. Leaders of the party that controls both the island's House and Senate and favors Puerto Rico retaining its current status as a commonwealth said it meant the White House rejected the referendum.
A White House spokesman did not respond to a message seeking comment.
There has been no agreement either on the meaning of the nonbinding referendum five months ago.
On the ballot's first question, more than 900,000 voters, or 54 percent, said they were not content with commonwealth status.
A second question asked voters to choose a status. Of the approximately 1.3 million voters who made a choice, nearly 800,000, or 61 percent, supported statehood. Some 437,000 backed sovereign free association and 72,560 chose independence. However, nearly 500,000 left that question blank.
The White House has not commented specifically on those results except to say it was clear Puerto Rican want to resolve their political status.
Puerto Rico previously held nonbinding referendums in 1967, 1993 and 1998, with statehood never garnering a clear majority and independence never obtaining more than 5 percent of the vote.
The island has been a U.S. territory for 115 years, and its people have been U.S. citizens since 1917 although they cannot vote in the U.S. presidential election, have no representation in the Senate and only limited representation in the House of Representatives
After Wednesday's announcement, Gov. Alejandro Garcia Padilla, who defeated statehood supporter and then Gov. Luis Fortuno in November's general election, issued a brief statement while on an official trip in Brazil.
"The U.S. president has heard the demands of the Puerto Rican government," he said, describing the proposed plebiscite process as fair.
Senate President Eduardo Bhatia, a member of the governor's Popular Democratic Party, said the plebiscite should include only options supported by Puerto Ricans. Otherwise, "it would be another futile exercise," he said. "Anything else is continuing the political carrousel of the last 115 years."
The announcement led to disagreements within the pro-statehood New Progressive Party.
Pedro Pierluisi, the territory's delegate to the U.S. House, celebrated the news.
"The White House has recognized that on November 6, 2012, a majority of the U.S. citizens of Puerto Rico withdrew their consent to the current territory status, which deprives them of the most fundamental democratic rights," he said.
But former Senate President Thomas Rivera Schatz chastised those within his party who welcomed the news, saying the referendum results already spoke for themselves.
"They have to demand respect for that vote," he said.