The government was forced to frame the new policy as the allotments made during the tenure of former Chief Minister Y S Rajasekhara Reddy were caught up in scandals.
There were allegations that lands were not being used for the purpose for which they were intended, particularly for establishment of industries.
"The new policy will address all such issues," state Information Minister D K Aruna told reporters late evening after a marathon five-hour meeting of the state Cabinet.
Under the policy, 'Land Management Authority' would be constituted (to be headed by Chief Commissioner of Land Administration) for allotment of land to individuals and businesses.
The tenure of land leases would be extended from 25 to 33 years under the new policy, the Minister said.