Karzai said the CIA payments, first reported by The New York Times, were used by national security officials to pay for "operational" costs associated with building up the Afghan National Security Forces.
The so-called CIA "ghost money" — delivered and accepted in secret as part of a deal between Langley and Kabul — has been "very useful, and we are grateful for it," Karzai said in a press conference in Helsinki, Finland.
The cash payments, sent clandestinely to Afghan officials via suitcases, backpacks and shopping bags, have reportedly fueled the rampant corruption and fraud that has plagued Karzai's government.
White House spokesman Jay Carney and CIA officials declined to comment about the funding program.
Last April, Karzai demanded the United States guarantee that his country will receive at least $1 billion in annual security funds as part of a U.S.-NATO postwar deal being drafted at the time.
Gen. John Allen, then commander of U.S. and coalition forces in Afghanistan, told Congress a month earlier that Afghan forces will need between $4 billion and $5 billion annually to maintain operations against the Taliban and insurgent forces.
At the time, Chairman of the Senate Armed Services Committee Carl Levin (D-Mich.) said Karzai was “reaching beyond what is realistic” in asking that the U.S. guarantee any financial support for security after the war.
The Afghan president's admission of the CIA program comes days after he demanded Langley rein in its network of paramilitary units in the country.
Trained and equipped by CIA and Afghan intelligence, known as the National Directorate of Security (NDS), the units have been operating in some of the most restive provinces in Afghanistan, in preparation for the American drawdown in 2014.
"They are conducting operations without informing local authorities and when something goes wrong it is called a joint operation," Karzai spokesman Aimal Faizi told reporters earlier this month.
Karzai demanded the drawdown of the CIA-NDS units after a gun battle in Kunar province ended with the deaths of 10 Afghan children, killed when NATO warplanes carried out an airstrike against a senior Taliban commander during the firefight.