FTC commissioners voted by 3-2 with Republicans in support and Democrats in opposition to the penalty, Xinhua news agency quoted a Wall Street Journal report as saying on Friday.
The personal data of over 87 million Facebook users were violated by the British political consultancy firm Cambridge Analytica.
The FTC opened a probe last year into the matter after the social networking giant admitted Cambridge Analytica acquired detailed personal information of more than 87 million Facebook users via an academic researcher.
The report of the $5 billion settlement, the largest ever by the FTC against a tech company over privacy issues after a $22.5 million settlement with Google in 2012, led to Facebook's stock price rise on Friday.
The reason for the stock price surge was because the settlement money is hardly a quarter of Facebook's annual profit that met with records this year.
The FTC also did not say anything about breaking up Facebook - a call that has been rising in the US political corridors.
The Facebook-FTC matter has now been moved to the US Justice Department for a review.
It is still unclear what restrictions are on Facebook's handling of user privacy in the settlement. FTC and Facebook declined to comment on the story.
Battling several privacy violations, Facebook in April said it has kept aside $3-$5 billion, anticipating a record fine coming from the US FTC.
"We estimate that the range of loss in this matter is $3 billion to $5 billion," Facebook had said.
As part of its settlement with the US FTC, the social media giant has also been asked to "strengthen its privacy practices".
The Facebook case is being looked at as a measure of the Donald Trump administration's willingness to regulate US tech companies.
( With inputs from IANS )