The ferry was carrying 476 people when it sank last April. More than 300 died, most of them students on a school trip.
The boat's captain has been jailed for 36 years for gross negligence. The disaster was also blamed on corrupt management and an inexperienced crew.
Victims' relatives are demanding an independent inquiry into the sinking.
Their demands have intensified in the run-up to the anniversary of the disaster on 16 April.
The disaster triggered nationwide grief followed by outrage, and led to severe criticism of safety standards and of the government's handling of the rescue operation.
On Wednesday, the government said it will also give nearly $700,000 to the families of the teachers who died.
The families of other victims killed when the ship went down will receive up to $550,000, depending on their age and income.
Relatives of the dead are expected to receive further money from public donations and insurance payments.
Those who survived the accident will also be offered government compensation for their injuries and loss of income.
The captain of the Sewol, Lee Joon-seok, was among 15 crew members to be tried last year over the sinking, one of South Korea's worst maritime disasters.
Prosecutors had charged him with homicide and called for the death penalty, but judges acquitted him on that charge.
The accident was blamed on a combination of illegal redesigns, the overloading of cargo and the inexperience of the crew member steering the vessel.
Crew members did not secure cargo which moved when the vessel took a tight corner, toppling the ferry. Lee was filmed leaving the sinking ship while many passengers remained inside. During the trial, he apologised for abandoning them.
The chief engineer of the ferry, identified by his surname Park, was found guilty of murder and jailed for 30 years.
Thirteen other crew members were given jail sentences of up to 20 years on charges including abandonment and violating maritime law.
A separate trial was held for employees of the firm that operated the ferry, Chonghaejin Marine Co.
The owner of the company and billionaire businessman Yoo Byung-eun disappeared after the disaster and was eventually found dead.
Several of his relatives were later jailed for embezzlement.
South Korea is to pay about $380,000 (£256.000; €353,000) in compensation for each of the nearly 250 students killed in the Sewol ferry disaster.