The move, more than a decade after the nuclear disaster, will once again hit the fishing industry in Fukushima, which has been opposed to such a move for years.
The government will begin work to release the water in two years, and the whole process is expected to take decades.
“Based on the strict adherence to established regulatory standards, we are choosing oceanic release,” the government said in a statement after the ministers concerned formalized the decision.
The water must be filtered again to remove harmful isotopes and will be diluted to meet international standards before being released.
The decision comes about three months before the postponed Olympic Games hosted by Tokyo, with some events planned about 56 kilometers from the devastated plant.
The removal of contaminated water from the Fukushima Daiichi plant, which is managed by Tokyo Electric Power, is a thorny issue for Japan as it embarks on a decades-long dismantling project.