In 2008, Nepal agreed to allow GMR to build the 900MW Upper Karnali hydroelectric power plant. However, the project has been delayed due to political instability as governments have changed six times in the last six years.
Reuters quoted Law Minister Narahari Acharya as saying: "This approval will open the way for different foreign investment projects that are in the pipeline to move ahead.
"Concerns shown by different parties about the benefits from the project have been addressed as far as possible."
The plant will provide 12% of the electricity generated to Nepal for free.
It is scheduled to be completed by 2021.
A project development agreement (PDA) will be signed by GMR with Investment Board Nepal, officals told the news agency, adding that the company will build transmission lines across the border in order to transmit the remaining power to India.
The agreement was initially planned to be signed in August, but was delayed as political parties wanted to make sure that the water supply would remain unaffected to irrigation canals.
Nepal will have 27% stake in the project.
Construction of another hydroelectric plants, which has capacity of 42,000MW of electricity, in Nepal, are under consideration by GMR, along with Indian firm Satluj Vidyut Nigam.
