The Turnbull government is giving back $32 million to the Australia Council, after anger at the Abbott government's decision to strip arts funding.
New Communications Minister Mitch Fifield is also replacing the controversial National Program for Excellence, created by Attorney-General George Brandis, with a new initiative called Catalyst.
"The rebalancing of funds will provide the Australia Council with greater capacity to meet the needs of small and medium organisations and is also in recognition of its role as the commonwealth's vehicle for supporting individual artists," Senator Fifield said in a statement on Friday.
Senator Brandis, who lost the Arts portfolio when Mr Turnbull became prime minister, diverted $104 million from the Australia Council in this year's budget to the National Program for Excellence.
Instead, Catalyst will be administered by the Ministry for the Arts and will work in a complementary way with the Australia Council and Creative Partnerships Australia, Senator Fifield said.
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The minister said the decision to change the program came after consultations and feedback.
There will be $12 million annually available through Catalyst, with the fund to be open to small, medium and large arts organisations.
Applications will be assessed with the help of independent assessors, Senator Fifield said.
Greens MP Adam Bandt described the announcement as a "partial win" and called on Mr Fifield to restore the full $104 million cut to the Australia Council.
"Mitch Fifield had the chance to end George Brandis' attacks on the arts once and for all with absolutely no cost to the budget, but he has only returned a third of the funding cuts," he said in a statement.
For many organisations, the move was too little, too late, he added.
