Transport secretary Ruth Kelly made the announcement which will see the money go towards the £382 million total cost of the scheme.
Greater Manchester Passenger Transport Executive appointed a consortium of Laing O'Rourke, GrantRail and Thales as preferred bidder for the job.
The extensions will go from the city centre to Oldham, Rochdale, and Chorlton as new track and new stops are created.
Work will also include upgrades such as rejuvenating disused rail routes for the trams to run on. This will in turn contribute to faster journey times and more frequent services.
This £244 million investment represents the final allocation of the £520 million dedicated by the Government to Greater Manchester transport improvements in 2004.