The monetary boost comes with conditions that the company draw up comprehensive plans for a turnaround to its dismal performance, according to reports.
A taskforce led by Pemandu chief executive Idris Jala comprising officials from the government and the private sector is expected to be set up to monitor the car manufacturer's transformation.
"Today's Cabinet decision is based on the interest of some 60,000 workers who rely directly on Proton's future," International Trade and Industry Minister Mustapa Mohamed was quoted as saying by national news agency Bernama.
"This loan is mainly to enable Proton to make payments to vendors that supply components to it," he added in a statement.
Among the conditions is the need for Proton to "convince the government" that its new business model is viable and competitive.
In particular, Proton has to create a turnaround plan to restructure the company and provide a strategic plan to expand its local and international market.
It also has to obtain notable foreign partners that will assist in leading research and development, and become a viable and competitive business at an international level.
The monitoring task force will comprise three representatives from the private sector and three from the public sector, namely the Finance Ministry, the International Trade and Industry Ministry and the Economic Planning Unit.
Private sector representatives will be identified as soon as possible.
The taskforce will also examine Proton's past business model and devise strategies to overcome any weaknesses.
Proton was formed in 1983 by Mahathir as part of an ambitious national industrialization plan, but it has suffered from a reputation for unimaginative models and poor quality.
Mahathir, who has been leading calls for Prime Minister Najib Razak to step down over alleged corruption involving a scandal-laden state fund, resigned as chairman of Proton in March. (jp)
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