Iranian Foreign Minister Manouchehr Mottaki announced the aid package during a conference held in Tehran in support of the Palestinians.
The pledge came as the Palestinian government led by the Islamic movement Hamas began to seek funding from Islamic countries after Arab governments failed to make good on promises for funds.
Israel, the United States and the European Union require Hamas, which they consider a terrorist organization, to renounce violence and recognize the Jewish state to obtain funding.
But Hamas' political leader Khaled Mashaal reiterated the group's refusal to meet those demands, saying Saturday in Tehran that his government would "never recognize Israel."
Iran is also under international pressure to change its ways. The United States and Europe question Iran's motives for enriching uranium, which can be used for peaceful purposes or nuclear weapons. Tehran claims that the aim of its program is to generate electricity.
Mottaki said the pledge was based a long-standing policy to support the Palestinians, Iranian state-television reported.
"Cutting the West's financial aid to Palestine would not affect the will of the Palestinian people," he was quoted as saying.
Sunday's announcement was the first time Iran announced a specific sum for the Palestinians. Previously, it said it would provide the government funding to compensate the PA for the West's withdrawal of funding.
Friday, the U.S. governmentwith the new Palestinian government, increasing U.S. financial pressure on Hamas.
In a memo obtained by The Associated Press, the U.S. Treasury Department said "transactions with the Palestinian Authority by U.S. persons are prohibited, unless licensed." It said the decision was based on "existing terrorism sanctions."
Palestinian officials condemned the American decision.