"Gujral will be given a state funeral. The cabinet also declared state mourning of seven days as a mark of respect to the departed leader," a senior minister said after the cabinet meeting.
Expressing profound sorrow, the cabinet also passed a resolution.
"The cabinet expresses profound sorrow at the sad demise of Gujral, the former Prime Minister of India. In his death, India has lost a great patriot, a visionary leader and a freedom fighter," the resolution said.
The tricolour will remain at half mast during the mourning period.
"The cabinet places on record its deep sense of grief at the passing away of Gujral and extends its sincere condolences on behalf of the entire nation to the bereaved family," the resolution added.