The decision was taken at a cabinet meeting chaired by Chief Minister Arvind Kejriwal here.
The move is intended to expedite development works in these colonies in the city.
At present, the Delhi State Industrial and Infrastructure Development Corporation (DSIIDC) is the only executing agency for carrying out civic projects, including constructing drains and roads in unauthorised colonies.
"The Delhi Cabinet, in its meeting, chaired by the chief minister approved the proposal of the Urban Development Department to entrust the development works in unauthorised colonies to Irrigation and Flood Control Department in addition to the DSIIDC," the AAP government said in a statement.
Last month, during the Monsoon session of the Delhi Assembly, several MLAs had complained that there had been a delay in executing civic projects in all 1,700 unauthorised colonies in their respective constituencies.
Responding to legislators' complaints, Urban Development Minister Satyendar Jain had then said the government had made a plan to allow the Flood and Irrigation department to look after development works in such colonies along with the DSIIDC.