Hackney Council said the record planning crime fine recouped rent paid by tenants on the 34 Hoxton flats.
Garland Development and the firm’s sole director Yusuf Sarodia were sentenced in November this year for the offence of failing to demolish the property, after the council served an enforcement notice in August 2011.
As part of the case, the council made an application to the court to confiscate money illegally made from the building under the Proceeds of Crime Act.
The council will receive one third of the fine with the other two thirds split between the court and the Treasury.
Money received by the council will be reinvested back into the services that brought the developer to justice.
At present, 62-year-old Sarodia has still to demolish the property, which is worth an estimated £10m.
The council today said it would seek further enforcement if action was not taken.
Cllr Guy Nicholson, Cabinet Member for Regeneration, Hackney Council, said: “Anyone who thinks they have a right to build a property in Hackney without first obtaining planning permission must realise that the council will take action against those who flout the rules.
“Putting up a building without planning permission is not only breaching planning law but to be quite frank puts at risk the safety of residents and neighbouring properties.”