In February, the French government recalled the Clemenceau, a decommissioned aircraft carrier containing tonnes of asbestos, after the environmental group said that scrapping it in India would threaten the health of workers.
A court order blocked the ship from entering Indian waters and Greenpeace activists staged several protests.
The group said New Delhi had not learnt a "single lesson" from the Clemenceau saga. The 46,000-tonne Blue Lady was on its way to the Alang yard in the western Indian state of Gujarat from Malaysia.
Greenpeace campaigner, Ramapati Kumar, said in a statement: "The Indian government is washing its hands of the ship and following a business-as-usual policy in Alang."
In a report in December, Greenpeace said that thousands of workers involved in the ship-breaking industry in countries such as India, China and Pakistan had probably died over the past 20 years in accidents or exposure to toxic waste.
The group said the 315-metre Blue Lady contains more than 900 tonnes of asbestos and heavy metals.
Environment ministry officials said they would not immediately comment.
The Blue Lady, which entered service in 1962, was owned by Malaysia's Star Cruises. A boiler room explosion in May 2003 killed seven crew.