The decision was taken at a meeting held to review construction of the flyover.
Sources said Delhi government will propose to Delhi Development authority to allot LIG flats to people whose land had to be acquired for construction of the flyover.
The North Delhi Municipal Corporation (NDMC), which is the nodal agency for the project, told the meeting that it will be possible to restart the construction work only when the resettlement is done and the land is freed.
It has already given Delhi Government Rs 24 crore for acquiring the land for construction.
The foundation of Rani Jhansi flyover - from Filmistan Cinema to St Stephen's Hospital - was laid in November 2008 and work was to be completed in 2011.
But work could not be completed due to issues relating to compensation to the people whose land has been acquired.
Officials said over 150 shops at Azad Market have to be relocated for completion of work on the flyover. The project was initially estimated at Rs 177 crore, but the cost escalated to Rs 210 crore due to the delays.