The Federal Trade Commission fined Google $136 million and the company will pay an additional $34 million to New York state to resolve similar allegations.
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The fine is the largest the agency has yet leveled against Google, although it is tiny compared to the $5 billion fine the FTC imposed against Facebook this year for privacy violations.
The FTC has been investigating YouTube for the way it handles the data of kids under the age of 13. Young children are protected by a federal law that requires parental consent before companies can collect and share their personal information.
"YouTube touted its popularity with children to prospective corporate clients," FTC Chairman Joe Simons said in a statement. Yet when it came to complying with the law protecting children's privacy, he said, "the company refused to acknowledge that portions of its platform were clearly directed to kids. There's no excuse for YouTube's violations of the law."
YouTube has said its service is intended for ages 13 and older, although younger kids commonly watch videos on the site and many popular YouTube channels feature cartoons or sing-a-longs made for children.
YouTube has its own app for children, called YouTube Kids; the company also launched a website version of the service in August. The site says it requires parental consent and uses simple math problems to ensure that kids aren't signing in on their own.
YouTube Kids does not target ads based on viewer interests the way YouTube proper does. The children's version does track information about what kids are watching in order to recommend videos. It also collects personally identifying device information.
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The vote was 3-2 by the FTC commissioners, with Simons and the two other Republicans approving the terms of the settlement and the two Democrats opposing them.
Commissioner Rohit Chopra, a Democrat, noted it was the third time since 2011 that the agency had sanctioned Google for privacy violations, saying "This latest violation is extremely serious."
The illegal harvesting of children's data was "extremely lucrative" for Google, Chopra wrote in his dissent. Like the recent settlement with Facebook, he asserted, the Google deal has "no individual accountability, insufficient remedies to address the company's financial incentives, and a fine that still allows the company to profit from its lawbreaking."
Experts who study and advocate for the safety of children online decried reports of the FTC's settlement with Google that circulated last week.
The Center for Digital Democracy called the reported fine of $150 million to $200 million "woefully low," terming Google's violation of the law "egregious."
"A small amount like this would effectively reward Google for engaging in massive and illegal data collection without any regard to children's safety," deputy director Katharina Kopp said in a statement.
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Indeed, the fine will barely dent Google's finances. Google's parent company, Alphabet, made a profit of $30.7 billion on revenue of $136.8 billion last year.
The federal government has increased scrutiny of big tech companies in the last two years - especially questioning how the tech giants collect and use personal information from their billions of customers. Many of the huge Silicon Valley companies are also under antitrust investigations aimed at determining whether the companies have unlawfully stifled competition.
YouTube has faced a number of child safety issues this year. In one case, comments that pedophiles left on innocuous family videos of kids pushed YouTube to turn off comments on nearly all videos featuring kids.
The FTC imposed a smaller fine of $5.7 million on video site Musical.ly, now called TikTok, earlier this year after finding it illegally collected personal information about kids.
Google is already under a 2011 agreement with the FTC that barred it from mispresenting its privacy policy and subjected the company to 20 years of regular, independent privacy audits. Google was fined $22.5 million in 2012 for violating that settlement when the FTC found it improperly used tracking cookies on Apple's Safari browser.
The FTC's fine against YouTube now needs to be approved by a federal court in Washington.