The cabinet passed the three-year reconstruction budget to cover rebuilding damaged areas, where farm and factory-related losses have amounted to some T$15 billion.
Part of the infrastructure in southern Taiwan, including 260 segments of road, has also been destroyed, causing a drag on the economy in the short term.
On Thursday, the cabinet also approved next year's central government budget, which does not include the special typhoon reconstruction, it said in a statement. Both are still subject to parliament approval.
The cabinet also said it had proposed T$1.7398 trillion for its central government spending, and T$1.5520 trillion of revenues, resulting in a deficit of T$1.878 billion.
Damage from Typhoon Morakot, which hit Taiwan over a week ago, has caused President Ma Ying-jeou's popularity to sink, with political uncertainty due to a possible cabinet reshuffle pushing the island's financial markets lower.
Disaster officials say 141 people died with 440 others missing. The final death toll is expected to rise to more than 500, some officials said.
"Relief work is moving from the rescue phase into a reconstruction and resettlement phase," the cabinet said in a statement after a meeting on Thursday to approve the special budget. "No government department can make any missteps."
Ma has seen his popularity drop sharply over the typhoon aftermath, the worst crisis of his 15 months in office.
The president, from the Nationalist Party (KMT), said on Tuesday his administration would investigate the government's response to the disaster and come up with names on who would be held responsible by early September. [ID:nTP202685]
(Reporting by Lin Miao-jung and Ralph Jennings; Editing by Lee Chyen Yee)
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