The suggestions will form the basis of the affidavit the government has to submit in the Supreme Court by July 3.
It is likely to tell the court that the lokpal bill, passed by the Lok Sabha in December 2011 and pending in the Rajya Sabha, provides for the appointment of the CBI director by an independent panel.
Experts say that retired judges overseeing CBI investigations is not in conformity with criminal law as the agency is bound to submit its reports directly to the court concerned.
The bill says a collegium, headed by the prime minister with leader of the opposition in the Lok Sabha and the Chief Justice of India or any judge nominated by him, would appoint the CBI chief.
The cabinet has agreed to the creation of an independent directorate of prosecution, aimed at ending the dependence of the CBI on government's law officers and ministry.
The CBI director will enjoy greater financial powers -- at par with those enjoyed by the heads of central police organisations.
The GoM was set up by the PM on May 14 after the court slammed the government for interfering in the CBI probe into the coal block allocation scam.
The case is due for hearing on July 10 and it will be known then whether the top court would be satisfied with the government's efforts to give autonomy to the CBI.