At the NSE, the stock surged 7.38% to a one-year high of Rs. 263.90.
The issue of surplus land has been pending since Tata Communications acquired the PSU in 2002, as the land assets owned by VSNL were not part of the deal.
The surplus land has been lying unused since the acquisition.
The land is estimated to fetch Rs. 6,150 crore to the exchequer.
The demerger of 773.13 acres, spread over at least five locations including Delhi, Chennai and Pune, was proposed to be carried out through HPIL, a special purpose vehicle formed through a cabinet decision in 2005.
The department of telecom (DoT) has proposed government taking 51.12 % stake in Hemisphere Properties Ltd (HPIL).
Meanwhile, rally in the stock sharply outperformed the weak broader market, where the Sensex was trading at 17,168.21, down 110.64 points at 1030 hrs.