An airline spokesperson said the move follows a written order from the Ministry of Civil Aviation.
Aviation sources said that with the AI revoking the ban, private airlines may follow suit.
The 56-year-old Osmanabad MP had yesterday written a letter to Minister for Civil Aviation Ashok Gajapathi Raju expressing his "regrets" over the "unfortunate incident" on March 23.
"I write to convey my regrets for the unfortunate incident that took place on 23rd March, 2017 in the Air India Flight No. AI-852 seat No.1F," Gaikwad had said in the letter.
More From This Section
An airline head on the condition of anonymity said it has been agreed that police investigation will continue and the MP will give a commitment that he will show acceptable behaviour in the future.
Gaikwad had assaulted an Air India employee and had boastfully claimed on national TV about having hit him with slippers 25 times. He was banned by the airline on March 24.
The MP, who had attended the Lok Sabha for the first time yesterday since the incident, had denied any "wrongdoing" on his part and instead accused Air India officials of misbehaving with him, and saught action against them, especially the airline's CMD.
He struck a somewhat conciliatory note when he tendered an apology to Parliament but insisted he owed no apology to the airline officials.
In his letter to the civil aviation minister, the MP had stopped short of tendering an apology to either the national carrier or the staffer concerned.
The party had also declared it would not attend the April 10 meeting of the NDA if the ban was not lifted.