The government has also decided to increase the age limit for consumption of liquor from the present 21 to 23.
Talking to reporters after a cabinet meeting, Chief Minister Pinarayi Vijayan said the policy was redrafted considering the fall in state revenue and increase in the consumption of intoxicant substances.
This, he said, was the fallout of the previous Congress- led UDF government's liquor policy.
The UDF policy had resulted in the closure of 712 bars below the five-star category as part of its aim to ensure total prohibition in 10 years time. A majority of these closed bars were later converted to beer and wine parlours.
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Pointing out that the UDF's liquor policy was a "total failure," Vijayan said the state's experience shows that it was "impractical" also.
There was a steep rise in the consumption of drugs after the closure of bars, he said.
The government has also decided to increase the age limit for consumption of liquor from the present 21 to 23.
With regard to the Supreme Court order banning sale of liquor within 500 metres of state and national highways, he said the state will abide by it.
In a path breaking decision, the LDF government also decided to allow three star category and above hotels in tourism sector to serve toddy.
A toddy board will also be constituted to help workers in this sector, the chief minister said.
The cabinet also decided to bring in timely changes in the present 'Abkari' rules.
About the Catholic church's charge that the LDF government had 'cheated' the state by deciding to reopen closed bars, he said "with all due respect to them we are unable to implement what they say. During elections we had made it clear that the LDF's policy will not be the same as that of the UDF."
On the demand of the Kerala Catholic Bishops Council (KCBC) for increase in their production of wine quota for religious mass, the chief minister said the government will give it due consideration.
Asked how many closed bars would be reopened following today's decision, Vijayan said it was difficult to give the exact number at present.
Excise Minister T P Ramakrishnan was present when Vijayan addressed reporters.
Earlier, the LDF had recommended the government to redraft the policy with the same suggestions.
The policy has already come under attack from the opposition Congress and the BJP.
While the Congress has said that it would launch agitations, the BJP said the new policy was the result of a 'secret pact' between the ruling front and bar owners before the 2016 assembly elections.
BJP president Kummannam Rajasekharan said the Left government, which came to power promising to reduce liquor consumption, has "cheated" the people through the new policy.
Earlier today, KCBC and anti-liquor campaigners had staged a march to the state assembly against the move to reopen closed bars.
On June 2, the government had liberalised its liquor policy by taking away the powers of local bodies to regulate setting up of liquor outlets.
Protest erupted over the government decision with a delegation of religious leaders, including the KCBC and anti- liquor activists, meeting the governor and expressing their opposition.