Municipal Affairs Minister Doug Griffiths has spoken to town council and says it's the right thing to do.
The money is meant to cover the cash the municipality had already invested in the $122-million project before the government cancelled it.
Fort Macleod waited for years for the police college that was promised by the government in 2006.
A ground-breaking ceremony was finally held in 2011, but last August the province abruptly announced it was not going ahead with the training centre.
Fort Macleod Mayor Shawn Patience says the community is left with a fully serviced lot for any future development.
The province had already indicated last summer that it would cover some of the town's costs.
"We have given assurances to the council that we are going to fully live up to ... contractual commitments," Griffiths said Thursday."And so ... we've decided that money invested by the municipality, their own money, we're going to pay for the investments that they made." The province had already spent almost $2 million of its own on preliminary work. As well, Ontario-based Bird Construction had been awarded the construction contract.
Premier Alison Redford said last fall that some of the money the province was going to spend on the police training centre was diverted to a new hospital in Grande Prairie.
Also on HuffPost