Several other departments and agencies will also be reorganised, according to the the new policy unveiled by State Councilor Ma Kai during the session of its legislature, the National People's Congress (NPC).
Under the new plan, the number of ministries will be reduced from 27 to 25.
The changes, which aim to cut down on red tape and reduce administrative intervention in the market and social issues, were made coinciding with once-in-a-decade leadership change in the country as a new government headed by Xi, 59, prepares to take charge from President Hu Jintao next week.
The Ministry of Railways, having faced flak for undertaking the twin jobs of providing train services and
serving as a watchdog, will now have separate administrative and commercial arms.
The Railways Ministry has faced numerous problems over the past few years, including heavy debts from funding new high-speed lines, waste and fraud. The government has pledged to open the rail industry to private investment on an unprecedented scale.
The railway administration will be supervised by the Ministry of Transport while the proposed China Railway Corporation will run its commercial functions, Ma said.
Two media regulators, the General Administration of Press and Publication and the State Administration of Radio, Film and Television, will be merged into one to oversee the country's press, publication, radio, film and television sectors.