The decision was taken during a Cabinet meeting chaired by Prime Minister Narendra Modi.
The Bill is set to be introduced in Parliament soon.
An ordinance is promulgated by the President on the recommendation of the Union Cabinet when Parliament is not in session. It is mandatory for the Parliament to adopt a law to replace the ordinance within six weeks of the commencement of the next session.
The Delhi Ordinance has become the latest flashpoint between the Aam Aadmi Party (AAP) government in Delhi and the Centre.
On May 11, the elected AAP government had scored a major victory after the Supreme Court handed over the control of services in Delhi excluding police, public order and land to the elected government.
Transfer and postings of all officers of the Delhi government were under the executive control of the LG before the May 11 top court verdict.
But on May 19, the Centre promulgated the Government of National Capital Territory of Delhi (Amendment) Ordinance, 2023, to create an authority for transfer and posting of Group-A officers in Delhi.
On July 17, the Supreme Court issued a notice to the Centre after the AAP-led Delhi government challenged the constitutional validity of the ordinance.
Arvind Kejriwal’s Aam Admi Party had reacted strongly against the ordinance saying the Centre had “deceived” the people of Delhi.
The Congress and several other opposition parties have also come out against the ordinance.
(With inputs from agencies)