The decision was ratified by the CCEA headed by Prime Miniser Manmohan Singh, sources said.
The Finance Ministry in March had sold 4.66 per cent stake in the state-owned company to Life Insurance Corporation (LIC) for about Rs 1,889 crore.
LIC purchased 11.41 crore shares in BHEL at a price of Rs 165.55 apiece through a block deal on the BSE.
Following the block deal, government stake in BHEL came down to 63.06 per cent, from 67.72 per cent.
The Empowered Group of Ministers, headed by Finance Minister P Chidambaram, had in February decided on the timing and mode of disinvestment in BHEL.
However, the CCEA approval was pending for the stake sale.
In August 2011, the Cabinet had cleared the sale of 5 per cent stake in BHEL through a follow-on public offer (FPO). However, market conditions led to a delay in the issue and the company in April 2012 withdrew the draft prospectus filed with market regulator SEBI.