£2m taken from banks in fines is being spent on rebuilding the Drumfork Club in Helensburgh.
The announcement on spending from Libor fines was made by Chief Secretary to the Treasury Danny Alexander.
A treasury statement said the club offered crucial support for naval families who live in married quarters, especially while their loved ones are away from their Faslane base on submarine patrol for long periods.
The current building is 50 years old and described as run-down and lacking modern facilities.
Mr Alexander said: “I’m delighted that this government has been able to donate money taken as fines to such great causes.
“This £2m will make a huge difference to thousands of Royal Navy and Royal Marines personnel and their families living in Argyll and Bute, who provide so much support to our vital submarine operators at HM Naval Base Clyde.”
Robert Robson, chief executive officer of the Royal Navy and Royal Marines Charity, added: “A modern, vibrant families hub will create a 21st century environment to support the crucial operational purpose of the armed forces through the provision of multiple areas of welfare support to sailors, marines and their families and reflects our charitable objectives and strategic partnership with the Royal Navy.”
The Libor fund has been raised through fines imposed on banks for misdemeanours and attempted manipulation of financial markets.
A total of £35m of Libor funding has already been given to military good causes in previous tranches, as well as £60m to support armed forces personnel, their families and veterans and a further £10m annually which has been earmarked from 2015 to support the Armed Forces Covenant.