The funding was personally approved by First Minister Rhodri Morgan, who has described him as "one of the outstanding Welshmen of the 20th century" and the project has been championed by Mr Gethin, accompanied by food entrepreneur Stan Thomas and his businessman son Sir Stanley Thomas.
"Without a shadow of a doubt, he was the greatest president the WRU ever had," said Mr Gethin.
"He never forgot his roots. He was still the same man from Nelson. To have counted him as a friend I count as one of the greatest honours of my life."
Sir Tasker died in September last year. Throughout his life he was reluctant to describe his wartime heroism - which included several charges on German posts on a single day.
"Sir Tasker Watkins was universally acknowledged as one of the greatest ever Welshman; he was awarded the Victoria Cross by King George VI in 1945 following his outstanding bravery and leadership during the Second World War," said an Assembly statement announcing the funding.
"He became the only Welshman to hold the post of Deputy Lord Chief Justice of England and Wales and was regarded as an illustrious president of the Welsh Rugby Union for 11 years."
No final decision has yet been taken about the location of the statue, but Mr Gethin said it will be in a "very prominent place".
He added that backing for the plans had come from Cardiff council, and that the WRU was in close contact with Sir Tasker's family.
Colonel Peter Howells, President of the Royal British Legion (Wales), said supporters would be invited to contribute towards the cost of the memorial.
He told Wales' national paper, The Western Mail: "He's been a credit for the nation, that's for sure, for the whole of his life. He was a self-effacing man and certainly didn't talk about his exploits at all."
Sculptor David Petersen, based in St Clears, is among the artists who have submitted a proposal for the statue.
He described Sir Tasker as a "phenomenal" person and "one of the major figures that Wales has ever produced."
Mike German, leader of the Welsh Liberal Democrats, said Sir Tasker was a man of striking modesty but who should be remembered publicly.
He said: "He never ever blew a large trumpet for himself. He was a very wise man - he would always impress you with his depth of understanding, but in such a modest way you couldn't fail to take note of what he said."
Mr German added it was "wholly fitting" that the statue should be at the Millennium Stadium, saying: "I hope this will be a way of making sure people don't forget what he did for our country."
In his legal career, Sir Tasker was deputy to the Attorney General in the inquiry into the Aberfan disaster of 1966.
His many honours included the Grand Cross of the Order of the British Empire and his appointment as a Freeman of the City of Cardiff.
Nick Bourne, leader of the Welsh Conservatives, said: "It is only right that Sir Tasker Watkins, a man widely acknowledged as one of the greatest ever Welshmen, is honoured in this way. A permanent statue of him at the Millennium Stadium will be a fitting tribute.
"I am delighted the Assembly Government will provide funding towards this.
"We must celebrate and be proud of the men and women who help shape Wales."
Cardiff council's executive member for finance, Councillor Mark Stephens, said: "We considered it appropriate for Cardiff as the capital city for Wales to play its part alongside the WRU, the Welsh Assembly Government and others to ensure there is funding in place for this statue to a remarkable man and a lifetime of achievement for Wales to be erected in Cardiff. The council has earmarked up to £25,000 for this purpose."
Sir Tasker Watkins - A lifetime of honour
Sir Tasker Watkins was born on 18 November, 1918, in Nelson, Glamorgan and was educated at Pontypridd Grammar School.
He served as a Lieutenant and then Major in the Welch Regiment throughout the Second World War, being awarded the Victoria Cross in 1944, before embarking on a long and distinguished career in law that reached its peak when he was appointed senior Presiding Judge for England and Wales in 1983, a position he held for eight years.
On leaving the Welsh Regiment after the war, Sir Tasker was called to the Bar, Middle Temple, in 1948 and was made a Bencher in 1970. He served as deputy chairman of Radnorshire Quarter Sessions between 1962 and 1971 and occupied the same position with Carmarthenshire Quarter Sessions from 1966 until 1971.
He was appointed Queen's Counsel in 1965 and was Recorder of Merthyr Tydfil between 1968 and 1970 and of Swansea during 1970 and 1971.
Sir Tasker was Leader of the Wales and Chester Circuit from 1970-71 and served as Judge of the High Court of Justice, Family Division, between 1971 and 1974 and of the Queen's Bench Division from 1974 until 1980. He sat as Presiding Judge of the Wales and Chester Circuit between 1975 and 1980 before taking up the appointment as senior Presiding Judge for England and Wales three years later.
Sir Tasker, who had been Counsel (as deputy to the Attorney-General) into the inquiry into the Aberfan disaster of 1966, chaired the Mental Health Review Tribunal, Wales Region, between 1960 and 1971 and was also chairman of the Judicial Studies Board during 1979 and 1980.
He was President of the University of Wales College of Medicine for 11 years from 1987 and President of the British Legion, Wales, between 1947 and 1968. He has been a member of the Territorial Army Association of Glamorgan and Wales since 1947.
He had a lifelong love affair with rugby union and had been chairman of the Welsh Rugby Union's Charitable Trust since 1975. He took up the Presidency of the Welsh Rugby Union in 1993 and held that post until 2004, when he stood down.
He became the 46th President of the WRU and the first man since Sir David Rocyn Jones in 1953 to hold office for more than one season and his 11 years make him the second longest serving President in the 126 year history of the WRU after Horace Lyne, who served between 1906-1947.
After informing the WRU chairman, David Pickering, of his decision to stand down, the Union's Board of Directors promptly created a new post of Honorary Life Vice Patron of the WRU especially for him. The Patron of the WRU is The Queen.
Speaking at the time, Mr Pickering said: "Sir Tasker undertook his duties as President of the WRU with huge commitment and great distinction. He is an exceptional man of high principles, honour and integrity who greatly enhanced the image and reputation of Welsh rugby for more than a decade. The WRU can ill afford to lose a man of such calibre and outstanding intellect. Following his announcement that he would be stepping down as President it was the unanimous decision of the WRU Board of Directors that we should invite Sir Tasker to become an Honorary Life Vice Patron. I am delighted that he accepted the new post, which was offered in recognition of his outstanding service to Welsh rugby and the Welsh Rugby Union."
He was also president of Glamorgan Wanderers RFC, for whom he played before and after World War II and captained their 2nd XV,.
He chaired the Sir Tasker Watkins Working Party that looked into the running of the game in Wales at the start of the new millennium, although their findings failed to receive the 75% majority required to come into being. However, the Working Party's review off the constitution of the WRU and the way the game was run did bring about wholesale change in 2002.
Appointed Deputy Lieutenant of Glamorgan in 1956, Sir Tasker became an Honorary Deputy Lord Lieutenant of Wales in 1979 and of Glamorgan in 1996 and an Honorary Fellow of the Royal College of Surgeons in 1992.
He married Eirwen Evans in 1941 and, in addition to his Victoria Cross, he was knighted in 1971, made a Privy Counsellor in 1980 and awarded the Knight Grand Cross of the Order of the British Empire (GBE) in 1990 and the Knight of St John (KStJ) in 1998.
In April, 2006, he was made an Honorary Freeman of the City of Cardiff, joining an elite list that included David Lloyd George, Winston Churchill and Nelson Mandela.
In handing over the keys to the city to Sir Tasker, the Lord Mayor, Freda Salway said: "He's exceptional, a one-off. He's an exceptionally courteous, gallant gentleman. He is a true gentleman in every sense of the word."
Sir Tasker's VC
He was 25 years old, and a lieutenant in the 1/5th battalion, The Welch Regiment, British Army during the Second World War when the following deed took place for which he was awarded the VC.
On 16 August 1944 at Barfour, Normandy, France, Lieutenant Watkins' company came under murderous machine-gun fire while advancing through corn fields set with booby traps. The only officer left, Lieutenant Watkins led a bayonet charge with his 30 remaining men against 50 enemy infantry, practically wiping them out.
Finally, at dusk, separated from the rest of the battalion, he ordered his men to scatter and after he had personally charged and silenced an enemy machine-gun post, he brought them back to safety. His superb leadership not only saved his men, but decisively influenced the course of the battle.
His Victoria Cross is on display in the Welch Regiment Museum located in Cardiff Castle.