Transport Minister Leo Varadkar has extended the funding — known as the public-service obligation contract — and will shortly be seeking tenders for a new Kerry/Dublin contract.
The current three-year contract is worth €3m and Kerry Airport has said it would be unable to continue the service without it and any withdrawal of funding could undermine the future of the airport.
Most regional airports depend on subsidies for services they regard as essential, but there are fears of cuts in such funding being mooted at EU level.
Kerry Fine Gael TD Brendan Griffin, welcoming the confirmation of the extension, said it would allow for a continuation of the service without a break, especially during Christmas, until a new tender process had been completed.
Aer Lingus Regional holds the current contract on the route, which is operated by Aer Arann.
Mr Griffin said the airport, through which 306,000 passengers passed last year, is a vital cog in the Kerry economy and he is hopeful there will be a positive outcome from the tender process.
Kerry Airport, meanwhile, is continuing to press airlines to restore a service to Manchester, with airport board vice-chairman Liam Chute saying he is confident the service will return.
The board has also agreed to look at the possibility of renaming the facility the Tom Crean International Airport in honour of the Antarctic explorer, who hailed from Annascaul, Co Kerry.
A Facebook campaign is already running to recognise Crean in such a way.
Kerry Airport shareholder Eddie Barrett, from Tralee, said many airports around the world were named after famous personalities and Mr Crean was known around the world for his exploits and adventures.
Mr Chute said several requests for a name change had been made in the past, including suggestions that the facility be called Killarney Airport or Rose of Tralee International Airport.
He said the board would consider the matter.