It comes after a campaign by Citizens Advice Scotland which welcomed the move – but warned many will still struggle to meet the costs associated with burials and cremations.
About 5,000 people are expected to be supported annually by the payment.
The sum offered to people on low income benefits to cover funeral director fees, a coffin and flowers, is to increase from £700 to £1,000 for all applications from April 1.
The funeral support payment was introduced by the Scottish Government in September, replacing the UK Government’s funeral expense payment in Scotland.
Citizens Advice Scotland spokesman Jamie Stewart said: “We have fought a long campaign on this issue and have been calling for better support for people who are struggling to afford a decent funeral for their loved one.
“We are pleased the government has listened to our campaign.
“Bereavement is an incredibly difficult time for anyone and the added distress of being unable to afford a funeral can be very upsetting.
“This announcement is a further step in the right direction for bereaved families but many will still find it difficult to afford a dignified funeral, so we hope to see further action on this issue in future.”
Those eligible for the payment must be living in Scotland, have had the nearest relationship to the person who has died, be financially responsible for the funeral and be on a qualifying benefit or tax credit, such as Jobseekers Allowance. Social Security Secretary Shirley-Anne Somerville said: “At a time when families are struggling to come to terms with the death of a loved one, the last thing they need is extra financial stress.
“I am proud we are increasing the standard rate by 40 per cent to £1,000 to support those paying for a funeral just months after introducing this important new payment.
“This increase, alongside the extended eligibility we have introduced, means the funeral support payment is there to ease the pressures on up to 5,000 people annually at such a difficult time in their lives. So far the total average payout has been around £1,500.
“This benefit is part of the new social security system we are building from scratch for the Scottish people, with fairness, dignity and respect at its heart.”