The Surf Snowdonia project at a former factory site at Dolgarrog in the Conwy Valley is due to open next summer.
The inland surfing lagoon will use technology called Wavegarden to drive waves up to 2m (6ft) high.
Tourism Minister Edwina Hart called it an "iconic attraction for Wales" during a visit for a ground-breaking ceremony at the site.
The plans include a "wave garden" with lagoons, water slide, wakeboard lake, lodges, restaurant, retail and play facilities and parking for up to 250 cars.
The developers said it would create 100 construction jobs with 60 jobs on site once it opens.
Announcing the funding, Ms Hart said: "This project clearly supports our strategy in creating new, perception-changing attractions.
"Surf Snowdonia will add a unique facility to an existing cluster of world class activity tourism products in the north Wales region and will drive growth by attracting additional higher spending visitors."
International Surfing Association president Fernando Aguerre said the centre would be suitable for world-class contests and could pave the way for the sport to be adopted by the Olympics.
He said: "Surfing no longer has geographical restrictions - venues can be built away from the coastline efficiently and sustainably.
"We can now reach new surfing participants and fans who have never been to or even seen the ocean."

The man known as Kazu, or 'King Kazu' by some fans, will stay with the second division side past his 49th birthday.
Kazuyoshi first played for Brazilian side Santos in 1986, so his deal will see his career span over 30 years.
"I'm thankful to the club staff and supporters who always offer me support," said Miura, who scored 55 goals in 89 appearances for Japan.
"I'll continue to give everything I have and strive," added the former Genoa and Dinamo Zagreb striker.
Perhaps unsurprisingly, Miura holds the record as the oldest scorer in Japanese football - a winner in a second division match four months after his 48th birthday.
He was particularly prolific in guiding Japan to the 1998 World Cup, scoring 14 goals in qualifying, and last played for the national side in 2000.
His career, which started when he moved to Brazil to play youth football aged 15, is one of the longest in football history.
Last week ex-England striker Teddy Sheringham registered himself as a player for Stevenage - where he is manager - at the age of 49 but opted out of playing in a local cup competition.

The country's Privacy Protection Commission accused Facebook of dodging questions from European regulators.
Internet users were also urged to install privacy software to stop Facebook tracking them, regardless of whether they had accounts with it.
The social network said it complied with data protection law and questioned the Belgian watchdog's authority.
The commission attacked Facebook after trying to find out more about its practices.
"Facebook tramples on European and Belgian privacy laws," it said after publishing a report analysing changes that the company made to its privacy policies in January.
In a statement, it said that Facebook has refused to recognise Belgian and other EU national jurisdictions, insisting it was subject only to the law in Ireland, the site of its European headquarters.
"Facebook has shown itself particularly miserly in giving precise answers," the watchdog said, adding that the results of its study were "disconcerting".
The body, which was working with its German, Dutch, French and Spanish counterparts, said that Facebook would not explain in detail how it used data it collected.
A Facebook spokeswoman questioned the Belgians' authority but said it would review the study's recommendations with the Irish data protection commissioner.
"We work hard to make sure people have control over what they share and with whom.
"Facebook is already regulated in Europe and complies with European data protection law, so the applicability of the [commission's] efforts is unclear," she said.
This is the second damning report this year on Facebook's use of data from the Belgian Privacy Commission. In February, it said it placed "too much burden" on users to navigate its complex settings.

Edwards, 23, has scored three goals in 127 games for the Shrimps since joining from Blackburn Rovers in May 2014, with two in 50 appearances last season.
The centre-half was named player of the year at Morecambe's awards night.
He is the third signing for the League One newcomers after the arrivals of Ruben Lameiras and Lionel Ainsworth.
Find all the latest football transfers on our dedicated page.
Ministers are providing £4m funding for a planned new surfing centre and "wave park" in Snowdonia.
[NEXT_CONCEPT]
Japanese footballer Kazuyoshi Miura has signed a one-year contract extension with Yokohama FC at the age of 48.
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Facebook "tramples" on European privacy law by tracking people without consent, Belgium's privacy watchdog has said.
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Plymouth Argyle have signed defender Ryan Edwards from Morecambe on undisclosed terms after agreeing a compensation package.