Malaysia's Central Bank was aware of the accounts'existence, he said, adding that the donor did not see it as a bribe and expected nothing in return.
"It's a donation, a gift. A donation is not illegal under any legal provision," he said.
The Wall Street Journal had reported in July that the funds had been discovered in Mr Najib's accounts by investigators probing accusations of financial irregularities at 1MDB. Mr Najib, who chairs 1MDB's advisory board, has denied the money came from the fund, which is being investigated by several foreign agencies, including the FBI.
The scandals have shaken investors in South-east Asia's third-biggest economy and rocked public confidence in the coalition led by Mr Najib's Umno party, which has held power since independence in 1957. Backing for the government among the ethnic Malay majority that forms the bedrock of Umno's support sank to 31 per cent in October, from 52 per cent in January, according to the most recent poll from research firm Merdeka Center.
In a speech to his supporters on Monday night, Umno's Deputy President Muhyiddin Yassin called on the prime minister to step aside until the investigations were completed.
"I would like to suggest that the prime minister take a rest for now," he said. "Allow the investigations to proceed freely, transparently and fairly... go on leave until the case is over."