A decision to this effect was taken at a cabinet meeting presided by Chief Minister Sheila Dikshit.
Officials said that after the retirement at the age of 62, government will now be able to offer a maximum of three one-year extensions to teachers.
"The re-employment will depend on vacancy available," said the officials. They said the pension amount will be deducted from the salary component.
They said the decision of the cabinet will be sent to Lt Governor Najeeb Jung for approval.
The retirement age of teachers in Delhi was raised from 60 to 62 years in 2006.
The officials said currently 2,000 posts of post-graduate teachers and 9,000 posts of Trained Graduate Teachers.