The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the project to be constructed at a total cost of Rs 1,123 crore.
The medical institute, to be set up under the 'Pradhan Mantri Swasthya Suraksha Yojna', is slated to be completed in 48 months from the date of approval.
It will have a pre-construction phase of 15 months, a construction phase of 30 months and a stabilisation or commissioning phase of three months.
The hospital will have 22 speciality or super-speciality departments including 16 operation theatres, an official statement said.
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It will also have an AYUSH department with 30 beds for treatment facilities in traditional systems of medicine.
"The establishment of the new AIIMS will serve the dual purpose of providing super-speciality health care to the population while also help create a large pool of doctors and other health workers in this region that can be available for primary and secondary level institutions being created under the National Health Mission (NHM)," the statement said.
Three such institutes -- in Nagpur (Maharashtra), Kalyani (West Bengal) and Mangalagiri in Guntur (Andhra Pradesh) -- were sanctioned in 2015 and two -- at Bathinda (Punjab) and Gorakhpur (UP) -- in 2016.