California power regulators increased the fine on Thursday from a previously agreed upon $1.7 billion settlement announced in December.
Several consumer groups had protested the settlement as too lenient in light of PG&E's destruction, and the California Public Utilities Commission agreed after further review.
PG&E officials said they were disappointed by the increased fine after “working diligently over many months with multiple parties" to reach the previous deal.
“We recognize our fundamental obligation is to operate our system safely and we share the same objectives as the Commission and other state leaders — namely in reducing the risk of future wildfires in our communities," PG&E spokesman James Noonan said in a statement.
The harsher punishment includes a $200 million payment to California's general fund.
The San Francisco company has already set up a $13.5 billion fund to help those who lost family members, homes and businesses in catastrophic wildfires caused by PG&E's outdated electrical grid and negligence during 2017 and 2018.
The fires killed nearly 130 people and destroyed almost 28,000 homes and other buildings.
More than 81,000 claims have been filed in the bankruptcy case.
California Gov. Gavin Newsom is threatening a government-led takeover bid if the utility doesn't make significant reforms.
PG&E needs state approval of the plan to qualify for the wildfire insurance fund.
The recent decision will also prevent PG&E from attempting to recover $1.82 billion from its customers, forcing its shareholders to bear the cost instead.
The company filed for bankruptcy 13 months ago to seek shelter from more than $50 billion in claimed losses. It is seeking to emerge from bankruptcy by June 30 to qualify for a state wildfire insurance fund.
PG&E has settled those claims by reaching settlements totaling $25.5 billion with the wildfire victims, insurers and some government agencies.
The Associated Press contributed to this article.