The funding is on top of £4.68m which had already been set aside for new housing developments.
Midlothian Council proposed that £1.605m of the funds will go to the Melville Housing Association and Dunedin Canmore Housing Association.
The remaining £525,000 will be used to directly support the council’s own social housing programme.
Cabinet member for housing, Councillor Owen Thompson, said: “Providing affordable homes to local residents is one of our top priorities as a council. We know how important housing is in making a positive difference to people’s lives.
“The funds allocated this week will help us continue to tackle the high demand for affordable homes.”