Most of the money will go toward a major upgrade of the visitor centre, while the rest has been put aside for the restoration and preservation of the penguin's eight-hectare beach sanctuary, Xinhua news agency reported.
The penguin parade, which happens every night at sunset as the flightless birds return to shore, pulls in 600,000 international and domestic tourists each year.
The Victoria state government said the new funding can help the nightly penguin parade, which takes place 90 minutes outside of the state capital of Melbourne, boost its annual visitor numbers by 20 percent over the next decade.
Victoria's Environment Minister Lisa Neville on Thursday said investing in the parade made both economic and environmental sense.
"Anyone who has visited the Penguin Parade knows just how special this natural spectacle is. It's only right that they have the facilities to match," Neville said.
"Tourists to Phillip Island directly fund world class conservation research. The announcement will ensure that the longest continuous seabird study in the world can keep doing its vital work."
Under the plan, the "outdated" 1988 visitors' centre will be moved to give the birds a chance to set up a new breeding ground in the vacated area.
By 2019, it is expected that a larger, more environmentally-friendly facility will be erected further down the beach closer to the fairy penguins' sand-dune burrows. It is estimated to be completed by 2019.
Phillip Island Nature Parks, the operators of the penguin parade, will also contribute around $8 million as part of the redevelopment.(IANS)