The decision was taken at a meeting of the Council of Ministers headed by Chief Minister Ashok Gehlot. The ban will come into force after a notification is issued.
"In view of the health of people, we decided to ban Gutkha. Provision has been made for penalty of Rs 25,000 to 10 lakh on violation through courts," Gehlot told reporters after the meeting.
The decision will cause a revenue loss of around Rs 125 crore, he said.
Those involved in the trade of gutkha and pan masala with tobacco should change their business in the interest of society, the Chief Minister said.
"Medical science has proved the level of harm caused by the Gutkha so its production should be discouraged at all levels. We will request the Centre to make a stringent law in this regard.
"Those who run factories of Gutkha are rich today because the business has good margin. They should also stop production of Gutkha and if they do not do this, then they are similar to anti-social elements because they are knowingly doing the business of poison and playing with the health of people," he said, adding, that other states should also come forward to ban the product.
Gehlot also expressed concern over possible illegal sale of Gutkha after the ban and said that efforts would be made to ensure that there is no sale of Gutkha in any manner.
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"Provision of cash penalty is made but I personally feel that those who illegally produce/store/distribute or sell Gutkha should be jailed," he added.
Gutkha is banned in many states like Maharashtra, Kerala, Madhya Pradesh and Bihar.