The empowered group of ministers, headed by External Affairs Minister Pranab Mukherjee, in a meeting decided to ask NTPC to pump in Rs 500 crore into RGPPL.
It also dismissed a proposal to hive off and sell the 5 million tonne liquefied natural gas terminal, official sources said.
While NTPC would operate the power plant, gas utility Gail (India) would secure 5 millions tonne of LNG for the plant, sources said.
The project requires 2.1 million tonne of LNG, while the remaining can be sold to other companies.
NTPC and Gail had infused Rs 500 crore each to take 28.33% stake in RGPPL at the time of taking over the Dabhol assets.
Maharasthra State Electricity Board and IDBI-led lenders own the remaining equity. The Board of the generating company had earlier cleared the investment, company sources said.
Sources said the additional investment would enable RGPPL to clear the dues of Punj Lloyd and its British partner Whessoe, the contractors for completing the unfinished LNG terminal adjacent to the 2,150MW power plant.
RGPPL needs Rs 450 crore for revival of power plant and Rs 565 crore for LNG works, but the cash-starved company does not have the money to pay the contractors.