The proposal will now have to be approved by the Cabinet Committee on Economic Affairs, before it can be implemented.
The approval comes two days after the Department of Industrial Policy and Promotion gave its nod for the same.
The IKEA group, which manufactures and sells home and office furnishing products, proposes to invest in single-brand retail trading in India through a 100 per cent subsidiary, and plans to set up 25 stores in the country.
This would be the largest investment in the single-brand retailing ever since the government has allowed foreign investment in this sector in January.
With the government relaxing the mandatory 30 per cent sourcing clause in September, IKEA, which had earlier expressed concerns over the issues, had filled its final application earlier this month.