The approval came in a meeting of senior Greek military and government officials led by Prime Minister Alexis Tsipras. The F-16s are often scrambled to confront Turkish planes over disputed air space in the Aegean.
The plan to upgrade more than half of the Greek F-16 fighter jet fleet was approved during a special meeting of the government's Council on Foreign Policy and Defense (KYSEA) chaired by Prime Minister Alexis Tsipras at the weekend, the PM's office said.
"The council unanimously approved the implementation of the 85-plane upgrade program," according to Tsipras' office.
Greece has 150 F-16 jets, some of which are nearly 30 years old. The upgraded planes will have capabilities similar to the much more advanced F-35 fighters, minus stealth technology.
The price tag is expected to top out at $1.45 billion (1.2-billion-euros).
The deal was originally announced last October during Tsipras' visit to Washington. But he quickly came under fire over the price tag, estimated then at $2.4 billion over 10 years. According to Defense Minister Panos Kammenos, the US had accepted a revised proposal, taking into account Greece's situation as it works through bailouts from the EU and the International Monetary Fund.
Officials in Ankara recently issued statements disputing Greek claims of sovereignty over a number of islets close to Turkey's Aegean shoreline.
Greek officials have attributed Turkey's rhetoric to presidential and parliamentary elections being held in June.
Greece's latest military buildup also includes plans to buy a pair of French frigates, according to Defense Minister Kammenos.
Due to the ongoing tensions with Turkey, Greece is one of the few NATO countries that meets the alliance's requirement for military spending. Athens allots more than 2 percent of its gross domestic product (GDP) for defense.