The Archbishop Emeritus, who led the truth and reconciliation commission to investigate apartheid-era abuses, has been quoted as saying the cash could have given "quite a few people decent homes".
The 84-year-old told Eyewitness News: "How could anybody who lived through apartheid and all that discrimination agree on so much money spent for one person, even when that person is the president."
"They [the country's ruling African National Congress] let themselves down. They let us down. They let the people who came to testify at the commission down.
Tutu, who was a key ally of Nelson Mandela and won the Nobel Peace Prize in 1984 for opposing apartheid, has openly criticised South Africa's ruling party in recent years.
When the ANC refused the Dalai Lama a visa to visit the country in 2011, he said: "I am warning you, as I warned the [pro-apartheid] nationalists, one day we will pray for the defeat of the ANC government."
Tutu has also criticised what he considers corruption within the top ranks of the ANC for hampering efforts to make South Africa a fairer nation.
It's understood there were calls as early as 2014 for South Africa's President Jacob Zuma to face corruption charges over claims his rural estate called Nkandla, underwent an 264 South African Rand (£11m) revamp.
Nkandla is near a settlement of the same name in KwaZulu-Natal province, eastern South Africa.
Earlier this year, Mr Zuma was told by South Africa's highest court to repay some fo the money he spent on Nkandla.
The South African government has in the past highlighted it's "zero tolerance stance towards crime in all its manifestations."