In announcing the decision Monday, Indian Home Minister Palaniappan Chidambaram said the 5-year old CPI (Maoist) party, accused of being responsible for about 180 deaths this year, said, "It was always a terror organization and today an ambiguity has been removed," the Hindustan Times reported.
The ban would give enhanced powers to security forces in dealing with the Maoists.
CPI(Maoist) spokesman Gour Chakraborty was quoted saying, "They have proved that they are against our fight to uplift the living standard of 95 percent of the population and found banning the only mean to counter the communists."
The Maoists, one of several extreme splinter communist groups in the country waging so-called "people's wars," have been blamed for numerous attacks that have left thousands dead in recent years.
In West Bengal state last week, federal security forces had to be sent in to assist state forces in ending the months-long Maoist siege at Lalgarh tribal region. They confronted Maoist-supported local tribal people armed with axes and bows, who were opposed to the Communist Party of India (Marxist), which leads the government in the eastern Indian state.
After their setback in West Bengal, the Maoists issued a two-day general strike in five states where they have strong support. While there was confusion among the Marxist communists as to whether to support the ban, other extreme leftist groups opposed it.
India's main opposition party, the Bharatiya Janata Party, however, endorsed the government's action, media reports said.