Representatives of the government and the Jewish Community of Lithuania called it a historic decision.
Commenting on the move, Lithuanian Prime Minister Andrius Kubilius has said the country pursues historic justice.
"These decisions are needed for all of us, needed for historic justice, and by doing this we have made a huge step forward to assuming our moral responsibility for history, sometimes difficult and tragic history," Kubilius told journalists on Wednesday.
The United States also welcomed the Lithuanian government's decision.
"The parliament’s adoption and the Government's implementation of this legislation are important steps towards historical justice and reconciliation. We applaud this and other ongoing efforts of the government and people of Lithuania to address the legacy of the Holocaust," U.S. Ambassador to Lithuania Anne E. Derse said in a statement.
The decision was also welcomed by U.S. Special Envoy to Monitor and Combat Anti-Semitism Hannah Rosenthal who said the United States commended Lithuania's efforts "to address a difficult period in their history, particularly its commitment to follow through with implementation of the compensation law. "We look forward to continuing to work with the Lithuanian government on these important issues in the future," Rosenthal said in a statement.
The move will allow to implement a law adopted by the Lithuanian parliament last year. According to the law, 128 million litas (EUR 36.5 million) will have to be transferred to a special fund over the course of ten years. The money will be spent on Jewish education, religious, scientific, cultural, healthcare and other projects.
3 million litas are allocated for Holocaust victims in this year's budget.
The compensation amounts to around 30 percent of the value of property that various Lithuania's Jewish communities owned before World War II, but lost to nationalization or expropriation by Nazi and Soviet totalitarian regimes.
Prime Minister's Chancellor Deividas Matulionis has said the government's move is a historic decision that might become a model for other countries with similar past.
"This historic decision reflects Lithuania's consistent policy... I believe that this decision might become a model of sorts for other states having historical conscience problems," Matulionis said.
Chairman of the Jewish Community of Lithuania Simonas Alperavičius, who also attended a Cabinet meeting on Wednesday, called the decision a miracle.
"It's a very important decision for the entire Lithuania, not only for Jews. Jews have always been accompanied by miracles. One miracle took place today. I am very grateful to the whole government, the prime minister," Alperavičius said. "Your government will go down in history, I am telling you," he added.
The Good Will Compensation Fund was set up last year. Its board will consist of 12 people representing Lithuanian Jewish communities. Matulionis said on Wednesday a half of board members will represent Jewish organizations in Lithuania, and the rest will represent Jewish organizations abroad.
Orthodox Jews and Kaunas Jewish Community objected to the establishment of the fund.
More than 90 percent of Lithuania's pre-war Jewish community of about 200,000 were annihilated by the Nazis and their local collaborators during World War II. Around 5,000 Jewish people currently live in Lithuania, according to the Jewish community.
