Angered by the reward, the Nigerian authorities have stepped up security around Taylor's hilltop villa in the southeastern city of Calabar.
Taylor, who went into exile in Nigeria in August, was indicted by the UN-backed war crimes court for arming rebels in Sierra Leone in exchange for diamonds.
On Thursday, US President George Bush signed a funding bill allocating $2 million for "rewards for an indictee of the Special Court for Sierra Leone."
Nigeria has reacted furiously to the reward with presidential spokesman Femi Fane Kayode saying the decision by the US Congress to draw up a bill endorsing people to go to another country to capture someone illegally was tantamount to "state-sponsored terrorism."
"Such a venture violates not only international law but also all the norms of civilized society," Kayode said.
He said Nigeria would resist any attempt to capture Taylor who was allowed into Nigeria as part of a plan agreed by African nations to resolve the conflict in Liberia.
Expressing outrage over the reward, sources close to Taylor said "the presence of the former Liberian president in Nigeria was part of the entire peace process."
"Any going back on the peace process will not augur well," he said.