The move came on the eve of the special session of the Punjab Assembly convened to discuss the issue in the wake of the Supreme Court holding as "unconstitutional" the 2004 law passed by the state government to terminate the SYL canal water sharing agreement with neighbouring states.
"The Punjab Council of Ministers today decided in public interest that the land acquired for the SYL canal project, at present vested in the Punjab government, free from all encumbrances, stands denotified with immediate effect and shall forthwith vest in the original land owners of their lineal descendants/legal representatives free of cost," advisor to chief minister on national affairs and media Harcharan Bains said.
Talking to news persons after the meeting, Cabinet Minister Daljit Singh Cheema said the cabinet was "competent" to take the decision.
"The water table is declining in Punjab. Neither we have water nor the SYL canal can be constructed. Therefore, the land acquired from farmers for the project should be returned to them. A decision has been taken by the state cabinet to denotify that land," Cheema said.
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The Punjab Assembly had in March passed "Punjab Sutlej Yamuna Link Canal land (transfer of proprietary right) Bill' "to provide for transfer of proprietary rights to the land owners from whom the land was acquired by the state government for the construction of SYL".
The objective is not to let the water go out of Punjab, he added.
A senior government official said the land acquired for the project measured close to 5,300 acres.
Earlier in the day, the core committee of Shiromani Akali Dal said the construction of the SYL canal was "neither necessary nor feasible" and vowed not to allow even a drop of water go outside the state.
After the Bill was passed by the state Assembly, Ministers and MLAs of all parties, led by Punjab Chief Minister Parkash Singh Badal, had met the then Governor Kaptan Singh Solanki requesting him to grant ascent to the new Bill for de-notification of the land acquired, but he did not commit to anything.
SAD and Congress workers had also given earthmoving equipment to help farmers level the land in a few villages in Patiala and Ropar districts.