The decision has been taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi here.
"The NSCN-K responsible for explosions, ambushes and bombings has been declared as an unlawful organisation for a period of five years," Union Telecom Minister Ravi Shankar Prasad told reporters here after the Cabinet meeting.
Prasad said the decision has been taken by the government after much deliberations taking into account the recent activities of the Naga insurgent group.
Union Home Secretary Rajiv Mehrishi said the NSCN-K was declared a banned organisation after deliberations and though and following due legal process.
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Prasad said the NDA government wants to have dialogue with all insurgent groups in the north-east as per a policy announced by the then Prime Minister Atal Bihar Vajpayee.
The ban on NSCN-K, led by S S Khaplang, came days after the National Investigation Agency, probing the June 4 incident in Manipur, where the outfit's cadres killed 18 Army soldiers, declared a reward of Rs 7 lakh for giving information about Khaplang and Rs 10 lakh about one of his deputies Niki Sumi.
Sources said there were differences within the government over declaring the NSCN-K as an outlawed organisation under the Unlawful Activities (Prevention) Act.
While the Home Ministry officials had been insisting for declaring it as a banned group, the interlocutor for Naga talks R N Ravi was reportedly in favour of reopening talks with the group.
A delegation of Naga civil society, with government's consent, has already gone to Myanmar to persuade Khaplang to come to the negotiating table.
However, the NSCN-IM, which entered into an agreement with the central government to bring lasting peace in Nagaland recently, has been demanding declaring NSCN-K a banned group.
National Socialist Council of Nagaland (NSCN-K) led by Khaplang has a strength of around 1,000 cadres with several camps across the border, a few of which were attacked by Indians Army commandos on June 9.
In May, nine militant groups of the northeast, including the NSCN-K and the ULFA faction led by Paresh Baruah formed a conglomerate of insurgents called 'United National Liberation Front of West South East Asia'.