Making the announcement in the Budget, the chancellor bowed to intense pressure from charities and cross-party politicians, who have repeatedly raised alarming concerns over the government's flagship welfare programme.
While defending the concept of universal credit in his address to MPs, Mr Hammond admitted the nationwide rollout was an "enormous undertaking".
In a move that will be welcomed by his Tory colleagues, who have demanded action over the highly contentious reform, the chancellor set out a package of measures over five years to support universal credit.
The cash will fund an additional two weeks of Jobseekers Allowance, Employment and Support Allowance and Income Support for people switching to the new benefit, cutting from five to three weeks the time they must wait for the first payment.
Effective from July 2020, the Treasury said the move would help 1.1 million claimants.
Mr Hammond added that he was also increasing work allowances in universal credit by £1,000 a year at a cost of £1.7bn annually, helping 2.4m working families with children and people with disabilities by £630 per year.
But Jeremy Corbyn repeated Labour's call for the welfare reform to be halted while a spokesperson for the party said Monday's announcement was "inadequate".
"The Office for Budget responsibility have confirmed that work allowance change in today's Budget only reverses around half of the previous Tory cuts from 2015," they added.
It comes after the chancellor admitted on Sunday there had been "teething issues" with the new system, and earlier this month the work and pensions secretary, Esther McVey, also conceded some individuals could be "worse off".
Earlier this month, John Major, the former prime minister, said that without urgent action to tackle the faults of the programme, Theresa May risked a backlash over universal credit similar to that experienced by Margaret Thatcher with the poll tax.
Responding to the chancellor's announcement on Monday, Emma Revie, the chief executive of the Trussell Trust, said: By restoring work allowances and increasing support to those moving onto universal credit the government has listened to evidence from the frontline and from foodbanks. These are significant improvements that will make a real difference to many people supported by universal credit in the future.
“However, right now, more and more people across Britain are struggling to make ends meet, unable to afford food, and facing hunger as a result. The huge rise in foodbank use where universal credit has been rolled out is the opposite of what should be happening: our benefits system should be protecting people from needing a foodbank, not forcing people to use one.
“By failing to ensure benefits cover essential living costs, the Government risks undermining the health, wellbeing and dignity of millions of people."
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies