Bernard Valcourt, minister of state for the Atlantic Canada Opportunities Agency, says the money will eliminate recurring boil water orders in the community.
The project includes rebuilding two existing wells and building a third well and a new control system to disinfect water.
A boil water order has been in effect for the village for the past two weeks.
Mayor Francine Caron says the work is expected to be completed by September 2013.
The federal, provincial and municipal governments are all contributing one-third of the total cost of the project, which must still undergo an environmental impact assessment by the municipality.