The official, however, said the decision to file FIRs against Gaikwad and impose a ban on him from flying with Air India was the airline's call and there was "no consultation" with the government on it.
"We had to withdraw the ban despite the fact that the MP did not apologise either to the airline or to our employees because of a government order," a top Air India official said.
"In view of the apology tendered by Shri Gaikwad and the undertaking of good conduct given by him, the Air India and other airlines are advised to lift the ban imposed on him," read the letter from the ministry.
In a letter to the Civil Aviation Minister Ashok Gajapathi Raju, Gaikwad had conveyed his "regrets for the unfortunate incident" but did not tender any apology either to Air India or to the staffer he hit 25 times with his slipper.
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Minister of State for Civil Aviation Jayant Sinha, breaking protocol, had called on Air India CMD Ashwani Lohani at the airline's headquarters to convince him to lift the ban, hours after Shiv Sena MPs created a ruckus in Parliament and gheraoed Gajapathi Raju.
However, when Air India filed FIRs against Gaikwad and imposed a ban on him, it was a decision taken independently by the airline, the source said.
The top official also said that since this was "a case of an assault" it stood apart from many previous cases of unruly behaviour by passengers onboard, forcing it to take a tough stand this time.
The official said Air India would not be withdrawing its FIRs against Gaikwad and, if needed, it is also "willing to go to court".