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The high voltage direct current link cable was proposed by Power Grid Corporation of India to link Dhanushkodi with Talaimannar in north western Sri Lanka.
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The 1,000 MegaWatt submarine cable would allow the Southern Indian grid to export excess power to Sri Lanka or vice versa, information minister Anura Yapa said
Yapa said the project was now "acceptable" to both India and Sri Lanka.
Indian reports have said the cable may cost around 450 million dollars and three and a half years to build.
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Sri Lanka now has a shortage of cheap power and is heavily dependent on expensive diesel power, but at least one cheaper coal power plant is expected to be up in about three years.