South Sudan declared its independence on Saturday after a referendum in January.
"Australia will shortly establish diplomatic relations with South Sudan," Prime Minister Julia Gillard and Foreign Affairs Minister Kevin Rudd said in a joint statement.
"Working with the international community, Australia stands ready to support the people of South Sudan and Sudan build a viable and secure future."
The $16 million will go towards services such as education, maternal health and sanitation.
Australia has a large South Sudanese community and is home to the largest Sudanese voting site outside of Africa.
Donati Anyau, a father of five was jailed by Sudanese authorities 20 years ago and says independence for his homeland has been a long hard battle.
"We are people who are still alive now," Anyau said.
"We see ourselves as the luckiest people because we've got people that they fought this country for us."
In Sydney, Sudanese Australians joined in the celebrations at the birth of South Sudan.
