The 21-year-old will receive $519,000 - $19,000 above the major league minimum - and would earn an additional $100,000 for winning the 2013 Platinum Glove Award as the AL's best defensive player.
Machado had a $495,000 base salary last season and earned $25,000 for making the AL All-Star team.
Teams had until Tuesday to reach agreements with unsigned players on their 40-man rosters, and players not eligible for arbitration were subject to unilateral renewal by their clubs.
''It's the system, and the system is never going to change,'' Machado said Tuesday. ''It sucks. The only thing I can control is to go out there and play and be the best player I can be. Go out there and play. Play for the fans.''
Orioles executive vice president Dan Duquette felt it was important to reward Machado with a raise, but for the most part he stayed true to baseball rules that give control to the club.
''The system is weighted more toward experienced players and we thought it was important to recognize Manny's significant contribution, not just with attaboys, but also with a bonus for his work,'' Duquette said.
''The structure and the way it's weighted that's really an issue for the players and their union, not really an issue for the club,'' Duquette said. ''The club sometimes benefits from the structure and sometimes the structure goes the way of the player. That's just the way the system works. We have a very precise and disciplined formula that we follow.''
Machado has yet to play this spring training following offseason knee surgery. Since he can't do anything about his contract, Machado will focus on getting back in the lineup.
''You know what? I'm going to go out there and try to be healthy, you know, try to get out there as fast as possible, be the best teammate I can be,'' he said.
The Orioles also announced Tuesday that 19 players agreed to terms on one-year contracts, including right-hander Chris Tillman, who won 16 games last season.