The ministry sent its decision to Indian President Pranab Mukherjee for a final decision on whether to commute Kasab's death penalty.
The Press Trust of India news agency quoted a home ministry official that Kasab's mercy petition was dismissed as he was involved in a grave crime and waging war against India in which 166 people, including foreigners, died.
India's Supreme Court has already upheld the death sentence of the 24-year-old Pakistani national, the lone survivor among the 10 gunmen involved in the November 2008 attacks in Mumbai that lasted three days and left 166 people dead and more than 200 wounded. The other gunmen were killed by security forces during the siege.
The Supreme Court said waging war against the country was Kasab's primary and foremost offense after dismissing his plea that he had been denied a fair trial, and that his confession, which he later recanted, was voluntary.
Kasab and the other gunmen were reported to have reached Mumbai by sea from Karachi, Pakistan.