Foreign Minister Julie Bishop denies Australia is robbing Peter to pay Paul as it helps vulnerable nations cope with climate change.
Prime Minister Malcolm Turnbull has pledged to spend "at least" $1 billion, with the funds to be redirected from the foreign aid budget.
"The money comes from our aid budget because this is what small island developing Pacific nations are asking for," Ms Bishop told Sky News on Tuesday.
Deputy Labor leader Tanya Plibersek slammed the move, given the aid budget was already much-depleted.
"This is pretty rich considering we've actually cut funding countries like Kiribati that are currently struggling with climate change adaptation and mitigation," she told reporters on Tuesday.
The Greens are furious with the decision, labelling the contribution as "paltry" and arguing other nations were not drawing funds from their aid budgets.
Leader Richard Di Natale says it comes at a time when the aid budget has been gutted, which means poorer countries will get less help with essentials such as immunisation, family planning and water sanitation.
The decision showed there had been no change since the Abbott era.
"This is a shameful exercise," he told reporters in Canberra.
"At least Tony Abbott realised if you are not going to bring anything to the party, don't show up."
