While he was governor, Schwarzenegger spent $1.1 million from his ballot measure campaign to advocate for his position on the state budget, according to the California Fair Political Practices Commission. The agency says that violated the state's Political Reform Act.
The Republican governor, who left office last year, spent the money on advertising during a dispute with Democrats in July 2009.
The complaint alleged Schwarzenegger's campaign committee violated the law by spending money for a TV and Internet ad campaign that was unrelated to any election and instead referred to state budget negotiations.
A Schwarzenegger spokesman says the former governor acknowledged violating the Political Reform Act only for purposes of the settlement and opted to pay the fine to avoid an expensive legal fight.
"We settled the case totally for financial reasons," Schwarzenegger spokesman Adam Mendelsohn said in a statement. "The governor was no longer in office and rather than spend tens or even hundreds of thousands of dollars on a long legal fight, we chose to settle."
The panel will consider the settlement at its March 15 meeting.
The Associated Press contributed to this story.