The decision had been expected after Cairn and Vedanta cut the price of the deal earlier this week.
Cairn Energy agreed last August to sell a majority stake in Cairn India to Vedanta in a deal that was valued at up to $9.6 billion. But the sale, one of the largest in India's energy sector, has been delayed due to a disagreement over royalty payments.
India's oil ministry has been pushing for Cairn India to share royalty payments with state-run Oil and Natural Gas Corp, which has a 30-percent holding in the Cairn-operated fields in western India but pays 100 percent of the royalties.
At 1426 GMT, Cairn Energy's shares were up 0.4 percent in London trade, while Vedanta rose 1.7 percent. Cairn India shares closed 2.2 percent higher, ahead of the announcement, in a firm Mumbai market
Earlier this week Vedanta agreed to buy a 10 percent stake in Cairn India by June 11, and another 30 percent after the Indian government's approval, but cut the price tag by more than $600 million.
It already holds 18.5 percent stake in the firm from an open offer and a stake buy from Malaysia's Petronas , and will increase this to 28.5 percent by July 11.
Copyright Reuters, 2011