The cabinet proposal comes days before Nasa's newest interplanetary rover is expected to land on the planet on August 6. However, the Indian spacecraft will not land, but only roam in its 500x80,000-km elliptical orbit.
According to plans presented to the government by Indian Space Research Organisation (Isro), the spacecraft will be launched during October-November 2013. It will enter the Mars orbit by September 2014.
The spacecraft will collect satellite images and send them back to earth to help Indian scientists study the possibility of life there.
According to the cabinet note, the Rs. 450 crore project will demonstrate India's technical capabilities.
The spacecraft weighing 1,350-kg will be launched by PSLV-XL from the Satish Dhawan Space Centre in Sriharikota, Andhra Pradesh. About 180 people will be involved in the project.
The US, Russia (and the former Soviet Union), the European Space Agency, Japan and China have so far been involved in a total of 44 space missions to Mars, most of which have failed.
The mission will be a test for the capabilities of Isro, which received mixed results for its lunar mission - Chandrayaan 1. Isro's reputation was also hit by the Antrix controversy.