The decision means the NZTA will provide up to $1.64million of the $2.7million budget for the Nuggets Rd project.
The Clutha District Council will cover the rest.
The council decided in May it would seal the road if it could get financial assistance from NZTA. The council said in a statement the design and consultation process would take place over summer.
Construction was expected to begin in autumn next year.
Clutha District Council service delivery manager Jules Witt said the council looked forward to the improved safety and driving experience the project would bring to the area.
‘‘This is great news for those living in the district as well as those who visit the popular tourist spot,'' he said.
NZTA Southern region director Jim Harland said sealing the road would be of great benefit to visiting drivers and locals alike.
Sealing Nuggets Rd was identified as a key project to create transport solutions for a ‘‘thriving Otago''.
Driving on unsealed and gravel roads was identified as a challenge for visitors and visitors to Nugget Point had increased to more than 60,000 per year.
‘‘This sealing will enhance safety for everyone,'' Mr Harland said.
The project was part of the 2015-18 Otago Southland Regional Land Transport Plans.
It was endorsed as a priority 1 project by the Otago/Southland Transport Committee.
-by Samuel White
