The government sold a majority stake in the nation's largest zinc maker to Anil Agarwal-led Vedanta Resources in 2002. It continues to hold a 29.5 per cent stake in the company, which Vedanta sought to acquire.
"It has been cleared," Commerce and Industry Minister Anand Sharma told reporters after a meeting of the Cabinet Committee on Economic Affairs headed by Prime Minister Manmohan Singh.
The decks for the stake sale were cleared following the Attorney General's view that there would be no problems in selling the stake through an auction since HZL is no longer a public sector company.
With a market capitalisation of Rs 56,006 crore, the government's stake in HZL is valued at Rs 16,521.77 crore.
Last month, Vedanta Chairman Anil Agarwal had said the company had received positive "indications" from the government on the matter and it may happen soon.
"We are getting the indications but it is a democratic process. Sometimes it gets delayed but it will happen," he had said.