Delhi will be brought under President's rule and the assembly will be kept under suspended animation, with the Union Cabinet on Saturday accepting the recommendation of Lieutenant Governor Najeeb Jung in this regard.
Jung had rejected the recommendation of the outgoing Aam Aadmi Party government, which had sought the dissolution of the assembly and fresh polls in Delhi.
The Cabinet decision will come into effect after promulgation of a notification by the President.
It has to be endorsed by Parliament through a resolution under Article 356 of the Constitution.
In a report to the Centre, Jung did not favour dissolution of the 70-member Delhi Assembly, as recommended by the Council of ministers headed by Arvind Kejriwal.
The Lieutenant Governor’s move keeps the option open for any political party or a combination of parties to try and form the government in the future.
Sources said Jung had conveyed to the Centre that the national capital should be brought under a spell of President's rule as no party is in a position to form the government.
Home ministry officials had said they would take the opinion of the law ministry and place all the facts before the Union Cabinet for the final decision.
The assembly elections late last year had given a split verdict with no political party getting absolute majority.
The Aam Aadmi Party led by Kejriwal had formed the government in December with support from the Congress.
The AAP government resigned on Friday after it failed to table the Jan Lokpal Bill in the Delhi Assembly.
The Lieutenant Governor has also sent, along with his report, the resignation letter of Arvind Kejriwal. The letter would be forwarded to the President for its acceptance.