The INR25bn ($543.3m) link will enable the two countries and enable them to start electricity trading by 2014.
The 285km India-Sri Lanka power link includes submarine cables over 50km, work on the project will start in next six months and be completed within three years.
The Krishnapatnam Ultra Mega Power Project (UMPP) in Andhra Pradesh, India, being developed by Reliance Power would create a tradable surplus in India and help Sri Lanka reduce its use of expensive fuels and import cheaper power from India's surplus.
According to the Power Grid's feasibility report, the subsea line would initially transmit 500MW, which would be increased to 1,000MW by 2016.
The construction of the project will also depend on the commissioning of NTPC's 500MW imported coal-based power project, being planned to be set up at Trincomalee in Sri Lanka.
Powergrid and Ceylon Electricity Board (CEB), an electricity company of Sri Lanka, will lay down cables under the Gulf of Mannar between Rameswaram in Tamil Nadu and Talaimannar in Sri Lanka.
