Tepco which operates the plant faces compensation payments worth tens of billions of dollars for victims of the world's worst nuclear accident since Chernobyl.
The centre-left government of Prime Minister Naoto Kan decided on a financial aid plan paid for mostly with new government bonds.
The scheme will give the government more influence in supervising Tepco, but its main goal is to save the biggest of Japan's 10 utilities from bankruptcy, and prevent turmoil on Japan's financial markets.
The government in a statement cited its "social responsibility in having promoted nuclear power" and said it would "support Tokyo Electric Power... under the principle of minimising the burden on the people".
Under the plan the government will create a body to handle claims made against the company and act as an insurance body for the nuclear industry.
Kan earlier this week announced a full review of Japan's national energy policy, scrapping a previous plan to build 14 new reactors to meet 50 per cent of the country's energy demand with nuclear power by the year 2030.