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The Government said the move will ensure those affected are not left out of pocket.
Earlier this week the Court of Appeal cleared 12 more former subpostmasters who were wrongly convicted of offences.
It brought the total number of judgements overturned to 57, but hundreds more are hoping for similar decisions.
A number of postmaster were wrongly sacked or prosecuted between 1999 and 2015 after money appeared to vanish from accounts at post office branches.
An bug in the computing system wrongly implied there was missing money.
It led to some subpostmasters being imprisoned after being convicted of stealing money.
Postal Affairs minister Paul Scully said: “The suffering and distress these postmasters and their families have gone through cannot be overstated.
“While nothing will make up for the years of pain they faced after this appalling injustice, I hope this initial step provides a measure of comfort.
“The Post Office has started to turn a corner in terms of dealing with its past mistakes – and this Government will support them in doing so wherever possible.”
He pledged an offer for an interim payment would be made to postmasters effected within 28 days of an application.
Post Office chief executive, Nick Read, said the compensation was “an important step” forwards following the scandal.
He said: “Ensuring compensation is made as quickly as possible is a priority for Post Office.
“I welcome the Government’s support to enable these interim payments that begin to provide some redress to people who were badly failed.
“Whilst we cannot change the past, this is an important step towards meaningful compensation for victims and we will offer payments as soon as possible.”
Labour said the compensation was “long overdue” and the news was “bittersweet”.
Shadow business minister Chi Onwurah said: “This is long overdue, and a victory for the sub-postmasters who have been fighting tooth and nail to secure justice for those affected in this horrendous scandal.
“Today’s news is bittersweet. For those sub-postmasters who lost their jobs, homes and reputations. For those who have still not had their convictions overturned and so will not be in scope. And for those who lost their lives for whom this news comes too late.
“We will look closely at the compensation government is proposing, because it remains baffling that the issue of compensation has been excluded from the Horizon Scandal Inquiry’s terms of reference.”
This is a breaking story…more to follow
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