A spokesman for Taiwan's cabinet said the increase "to protect national security" — a year-on-year boost of 19% — represented a record high. Yearly growth has been below 4% since 2017.
Some of the funding will be used for new equipment, including high-tech fighter jets.
Directorate General of Budget, Accounting and Statistics Minister Chu Tzer-ming said the increase would mainly go to operational costs.
"We always give safety and national security the top priority. ... That's why (the budget for) operational costs rise greatly," Chu said, pointing to costs such as fuel and maintenance for aircraft and ships that are deployed to counter Chinese military activity in the island's vicinity.
The plans have been approved by ministers but must now go to parliament to be approved.
Taiwan: Renewed fear of war
Why is Taiwan afraid of invasion?
The Chinese military staged maneuvers around Taiwan earlier this month in response to a visit to the democratically governed island by US House Speaker Nancy Pelosi.
China considers the island — which has been independently governed since 1949 — to be part of its territory. It opposes any form of official contacts between Taiwan and other countries, and has not ruled out military action to take back the territory.
Taiwan's Defense Ministry has vowed to strengthen the country's capability to conduct asymmetric warfare to deter China's People's Liberation Army.