The Czechs have been adamant about keeping nuclear power despite a shift to renewable energy in many European Union states, arguing nuclear is a carbon-free alternative.
"We are securing a stable source, affordable price of electricity," Industry Minister Karel Havlicek said on Twitter.
The loan would help the new unit at the existing Dukovany nuclear plant get closer to economic viability. The government also plans to buy power from the roughly 1,200 megawatt unit at a price determined from agreed construction costs to give CEZ enough security.
The plan needs to win approval from the European Commission to ensure it meets EU state aid rules.
The government and CEZ have said the project could cost about 6 billion euros (5.43 billion pounds), but critics say nuclear projects almost always exceed initial estimates.
A government document seen by Reuters showed the loan aimed to cover 70% of the cost. It would initially be interest free, with 2% interest charged after the unit is brought on line.
CEZ would be allowed to make a profit from the project in order to meet obligations to shareholders, the government has said.
Russia's Rosatom, China's China General Nuclear Power, France's EdF, South Korea's KHNP, U.S group Westinghouse, and a joint venture between France's Areva and Japan's Mitsubishi are expected to participate in a CEZ tender to build the plant.
Czech and security officials have advised the cabinet to keep Russian and Chinese firms out of the deal, but the cabinet has insisted on keeping all interested parties involved to try to ensure competitive bids.
CEZ is expected to choose the supplier by the end of 2022.
(Reporting by Jan Lopatka and Robert Muller; Editing by Mark Potter)