The cut was expected to impact over 13,000 bereaved families who rely on the service.
Albanese told 2GB’s Ben Fordham he personally intervened to save the charity, placing the blame on a “bureaucratic error”.
The charity warned earlier it would be forced to cut back on services such as its 24/7 phone support line along with many other face-to-face and digital bereavement services when its funding ran out on June 30.
Albanese pledged to deliver $2 million per year for the next three years.
“I knew nothing about this,” he said.
“I very quickly tried to get to the bottom of it and it’s been some bureaucratic competitive process based upon guidelines.
“These are things that are set up to ensure integrity in the system and occasionally, frankly, they just get it completely wrong.
“And on this, they’ve got it completely wrong. It’s a unique charity that’s deserving of support and on my watch, it certainly will have that.”
Red Nose chief executive Amy Cooper thanked the prime minister while speaking on 2GB.
She said it was “incredible news”.
“Thank you for recognising the support our grieving families need. We try and make a difference for families at the very toughest time,” she said.
“It’s an incredible outcome that the government is committed to funding our service. It makes a difference for our 24/7 support.”