The deal will "exorcise" the "Bofors ghost" by inducting the army's first modern 155mm howitzers since the scandal in the mid-1980s, a report by The Times of India said.
The council, led by Defense Minister A. K. Antony, cleared the purchase of 145 M-777 .39-caliber ultra-light howitzers from the United States in a direct government-to-government deal worth $647 million under the Foreign Military Sales program.
The final contract with BAE Systems, which now owns Bofors, will be signed as soon as the Ministry of Finance and then the Cabinet Committee on Security give their expected agreement, the Times said.
Senior politicians, including former Prime Minister Rajiv Gandhi, were accused of receiving kickbacks from arms manufacturers in return for paying inflated prices for Bofors guns.
India's Central Bureau of Investigations continued to look into the Bofors affair despite no major successful prosecutions.
Rumors of scandal were partly responsible for the electoral defeat of Gandhi's ruling Indian National Congress Party in the November 1989 general elections.
In 2004, the Delhi High Court quashed charges of bribery against several people, including Gandhi, who was assassinated in 1991.
The announcement of the U.S. Bofors purchase comes as the first user trials of an indigenously manufactured Bofors-type gun are to start, the Indian defense Web site DefenseNow said.
In early March, the Indian army announced an order for 100 .52-caliber howitzer artillery pieces to be made by the Ordnance Factory Board, in Kolkata, West Bengal state, a report by the online news site Indian Express said.
Trials of these OFB guns are to take place at the Pokhran range in Rajasthan state.
The state-run OFB is manufacturing the gun based on the Bofors design which was transferred in 1986 but which lay unused due to the Bofors scandal, DefenseNow said.
"While the OFB has not called its homegrown version of the artillery gun as a Bofors gun, it will be an upgraded version of the Bofors," DefenseNow said.
Defense procurement plans are expected to be speeded up after the defense budget, announced in March, took a 17 percent jump to around $40 billion for 2012-13, partly because of major acquisition plans.
Around 18 percent of the $40 billion will be for capital expenditure -- buying new equipment up to March 2013.
A major chunk of the military budget will be for purchase of the medium multi-role 126 Rafale fighter jets from French manufacturer Dassault, a deal worth between $10 billion-$20 billion over several years.
Dassault edged its main rival EADS with its Eurofighter Typhoon last month as preferred supplier and the final contract -- India's largest single defense deal -- is expected to be signed by the summer.
The tender, which was issued in August 2007, also was contested by Boeing with its F/A-18E/F Super Hornet, Lockheed Martin's F-16, the Russian-made MiG-35 and the Gripen from Swedish firm Saab.
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