Described by Prime Minister Narendra Modi as a "perfect tribute" to the country's brave soldiers, the memorial and the museum in Princess Park here is estimated to be completed in five years.
Post-Independence, more than 22,500 soldiers have made the supreme sacrifice in national interest and in defence of the sovereignty and integrity of the country.
"The National War Memorial will be a perfect tribute to our brave soldiers who have given their lives for the nation," Modi tweeted.
With this decision, a long-pending demand of the armed forces has been redressed, an official statement released after the Cabinet meeting said.
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It has been decided that the project will be monitored by an empowered Steering Committee chaired by Defence Secretary and assisted by a dedicated project management team, to ensure that the project is completed within the scheduled time-frame.
Government sources said Prime Minister Modi has given clear directions that the memorial should be world class and one of the best globally.
The memorial will not only take into account the martyrs of the various wars that India fought, but also the soldiers who were killed in counter-insurgency and anti-terror operations in the North East, Jammu and Kashmir, besides other places and battles fought in Siachen and IPKF operations in Sri Lanka.