"Payment of compensation to the riot victims would come to 7.15 billion rupees (160 million dollars), which will be borne by the central government," Finance Minister P. Chidambaram told a briefing.
The package will make up any shortfall in compensation already paid so that the family of each fatality gets a total of 350,000 rupees (7,800 dollars), while those injured in the riots are entitled to a total of 125,000 rupees.
The move to give more money to Sikh riot victims came after a commission of inquiry report released in August said that some Congress party leaders may have helped incite the riots.
The Delhi High Court in May had also directed the government to increase the amount of money given to the riot victims, noting that in some cases the injured received as little as 2,000 rupees, the Indian Express paper reported at the time.
Witnesses say police turned a blind eye as gangs dragged out Sikh families, killing men and boys and raping women after Gandhi was shot on October 31, 1984 by two Sikh bodyguards.
At least 3,000 people were killed, tens of thousands of Sikh homes and businesses were burnt and many victims' families were financially ruined.
Gandhi's assassination was in revenge for her sending in the army to evict Sikh separatists from the religion's holiest site, the Golden Temple, in the Punjab state.
The state was racked by a violent insurgency at the time.
The release of the long-awaited report this year caused turmoil in India's parliament, with the Congress-led government being accused of protecting those named in the report.
Eventually, two ministers resigned, and Manmohan Singh, who became the country's first Sikh prime minister when the Congress party won elections last year, apologised in parliament for the riots.
Victims of the riots rejected apologies from Singh and vowed to intensify demands for the prosecution of politicians blamed for the massacre.
One Sikh widow questioned the value of an apology given after 21 years.
"They dragged my husband and my three brothers and even as they begged for their lives, the mob set them on fire, beat them with rods and killed them," said Kaushalya Kaur. "Apologies after 21 years? It's so meaningless."
The government has said it will take "all possible steps" to reopen cases against people named in the report "within the ambit of law."