He admitted in a tweet lawyer Michael Cohen had paid off Stormy Daniels during the campaign and was reimbursed.
Using campaign funds could have been a violation of federal law. Earlier, his legal aide Rudy Giuliani had said the money was Mr Trump's personal cash.
Ms Daniels says she had an affair with Mr Trump in 2006.
What has Mr Trump said?
The president fired off three tweets on Thursday morning.
In them, he admitted that Mr Cohen had "received a monthly retainer, not from the campaign and having nothing to do with the campaign, from which he entered into, through reimbursement, a private contract between two parties, known as a non-disclosure agreement, or NDA".
This could be crucial in determining whether the $130,000 (£95,650) paid to Ms Daniels was legal.
What are the issues over campaign finance?
US federal law restricts how much individuals and organisations can contribute to campaign financing and there are also strict regulations on the disclosure of the financing.
The key question may be whether the money was used to prevent Mr Trump's reputation being harmed during the campaign, and therefore be deemed as related to the election.
Legal expert Lawrence Noble told the Washington Post: "If the purpose of this was to stop [Daniels] from hurting the campaign, then what you have is Cohen made a loan to the campaign."
The $130,000 would exceed the amount an individual can donate to a presidential campaign.
Any repayment by the Trump campaign would violate the law.
But presidential candidates are allowed to contribute an unlimited amount to their own campaign. Mr Trump may be arguing that the personal nature of the repayment makes it legal.
If the $130,000 were deemed to have been a loan to Mr Cohen, the president would only have had to disclose the repayment to the Federal Election Commission if it were an election-related expense.
There is no mention of any debt to Mr Cohen on Mr Trump's personal financial disclosure form from June 2017.
Has what Mr Trump said squared with Mr Giuliani?
The former New York City mayor recently joined Mr Trump's legal team and had earlier been interviewed by Sean Hannity on Fox News.
The campaign finance issue appeared to be one his main motives for appearing on the programme.
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