Brushing aside opposition from BJP and the state government, the Union Cabinet took the decision under the Commissions of Inquiry Act under which the Modi government has already set up a similar panel.
"The Cabinet has approved a proposal to set up a Commission of Inquiry under Commission of Inquiry Act, 1952, to look into the incidents of physical/electronic surveillance in the states of Gujarat and Himachal Pradesh and the National Capital Territory of Delhi, allegedly without authorisation," an official release said.
The Centre's decision overrules the contention of the Gujarat government that the matter was a state subject and that it has already appointed a Commission to probe it.
The Union Cabinet's decision came against the backdrop of fresh claims that the alleged snooping was conducted beyond the state of Gujarat.
The controversy broke out more than a month ago when two news portals released CDs of purported telephonic conversations between Modi aide and the then Gujarat Home Minister Amit Shah and two top state police officials relating to snooping on a woman.