Satinah Binti Jumadi Ahmad was sentenced to death in 2011 for murdering her employer's wife and stealing money. She was due to be beheaded in the coming days.
Her case has attracted huge media attention in Indonesia and there was a campaign in recent weeks to stop the execution from going ahead.
Under Islamic sharia law followed in Saudi Arabia, the family of a victim can settle for "blood money" instead of an execution.
The family demanded seven million riyal ($1.9 million) but contributions from businesses and a group representing companies that send migrant workers abroad only managed to raise four million.
Indonesian Security Minister Djoko Suyanto said Thursday that the government had agreed to provide the remaining three million.
"We have agreed to fulfil the family's demands," he told reporters in the capital Jakarta.
"This will help to save Satinah from the death penalty."
The family had initially asked for 15 million riyals but agreed to lower it, he added.
The Indonesian government has fought a long battle to save the maid and had already managed to get the execution delayed five times since her conviction.
Saudi Arabia is the biggest destination for Indonesian maids, with around one million in the ultra-conservative kingdom.
If Ahmad was beheaded, it could have set back attempts by Indonesia and Saudi Arabia to mend ties damaged by the 2011 beheading of an Indonesian maid, who was also guilty of murder.
That execution infuriated Indonesia, particularly as Saudi officials failed to inform Jakarta beforehand, and authorities placed a moratorium on sending new maids to Saudi Arabia, which remains in place.
The countries took a step towards overcoming their differences with the signing of an agreement in February to give maids in the ultra-conservative kingdom better protection.
Rape, murder, apostasy, armed robbery and drug trafficking are all punishable by death under Saudi Arabia's strict version of sharia law.