Srilakshmi, an IAS officer of 1988 batch, is currently in judicial remand following her arrest by the central agency.
A press release from the Chief Minister's Office said the government permitted CBI to prosecute Srilakshmi under the Criminal Procedure Code as well as the Prevention of Corruption Act.
"In view of the serious charges against her, the government approved her prosecution," the release added.
Srilakshmi is facing charges of issuing certain government orders (GOs) favouring the mining companies of Gali Janardhana Reddy in violation of rules.
Last week, the state government gave it consent for the prosecution of another senior IAS officer B P Acharya, arrested by CBI in the APIIC-Emaar case, under the Prevention of Corruption Act.
The state government, however, declined permission for prosecution of another IAS officer L V Subrahmanyam in the same case, saying there was "not much evidence" against him.
However, Subrahmanyam, currently posted as Executive Officer of Tirumala Tirupati Devasthanams, has been summoned to appear in the CBI special court here on June 18 along with Acharya.