North Charleston City Council approved the deal in a unanimous vote.
Walter Scott, 50, was shot in April by Officer Michael Slager while running from a routine traffic stop.
It was one of several cases across the US in which unarmed black men died during encounters with police officers.
Officer Michael Slager was charged with murder and dismissed from the police force.
A police dashboard camera caught the moment Walter Scott ran from his car, while footage from a bystander’s mobile phone showed the officer firing eight shots at him as he fled.
“This is a very difficult period for the Scott family. I know they are glad to have this part behind them so their healing process can continue,” said North Charleston Mayor Keith Summey in a statement quoted by the Washington Post.
“As a result of this tragedy, important issues have been discussed, not only in North Charleston, but around the country. Citizens have become engaged in this process and government officials are listening.”
In July, New York City agreed to pay $5.9 million to the family of Eric Garner, who died after allegedly being put in a chokehold by a police officer.
In September, the City of Baltimore agreed to pay $6.4 million to the family of Freddie Gray, who died of a critical spine injury while in the back of a prisoner transport van in April.
Michael Slager has been detained in solitary confinement pending his trial. If convicted, the former officer faces from 30 years to life in prison without parole.
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