Ottawa says it will hand over $26.4 million to the Ontario government to help cover the massive costs related to the ongoing First Nations land dispute in Caledonia.

Indian Affairs Minister Jim Prentice said $10.6 million will help the province foot the bill for extra policing during the occupation, while $15.8 million will go towards the Ontario's purchase of the housing project at the centre of the dispute.

"Because of what happened in Caledonia, the government of Ontario had to incur additional expenses,'' Prentice told a news conference in Ottawa on Thursday.

Ontario calculates the cost of the dispute at more than $46 million, with almost half of that money going to increased staffing by provincial police.

The standoff has led to a number of violent clashes involving First Nations members and local residents of the southwestern town since the protest began last February.

Ontario Premier Dalton McGuinty welcomed the money during a visit to London, Ont. He had been urging Ottawa to help cover the rising costs.

"It's an important symbol that the federal government does understand it has a valuable role to play," he said.

"The other thing that's really important here to note . . . is that the prime minister is granting an expanded mandate to his negotiators and hopefully that will lead to an accelerated process so that we can resolve this in a peaceful manner."

Jim Bradley, Ontario's minister responsible for aboriginal affairs, also said the money was appreciated.

"It's obviously a big help,'' David Ramsay said in an interview with The Canadian Press on Thursday. "We've had these costs and any contribution is very helpful.''

Prentice also said the federal government will engage in a new series of talks with the Six Nations members and negotiations have been expanded to address a number of land claim issues.

"We are committed to finding common solutions through dialogue," he said.

"The negotiators are dealing with difficult issues and complex questions that stem from one of the oldest land claims in Canada. It is my belief that with patience and mutual respect, I know that we will get this situation resolved."

Federal negotiator Barbara McDougall now has the authority to deal with a number of outstanding Six Nations land claims in the region.

"We are all anxious to move these discussions forward with the goal of resolving this longstanding claim," McDougall told reporters.

Six Nations protesters moved into a 40-hectare unfinished housing development in February 2006, saying it was taken from them by the Crown 200 years ago.

The Ontario government recently offered $430,000 compensation to Caledonia homeowners affected by the ongoing dispute.

The compensation offer has been called an insult by some residents, who will get between $2,000 and $6,000 for disruption in their community.

The money was in addition to $1.4 million the province gave to local businesses to make up for lost revenues when the community's roadway was blocked. Haldimand County also received $210,000 for marketing and $100,000 to pay for counselling for residents.

With files from the Canadian Press