Arjun Singh, minister of human resources, said: "Millions of backward classes ... have been looking forward to getting an opportunity for equitable access to institutions of higher learning maintained by the state."
Hundreds of students fought police and marched towards the parliament in the heart of the Indian capital, as the bill was introduced on Friday.
In Mumbai, India's financial hub, police detained dozens of protesters, mainly medical students and doctors, as they headed towards the residence of the chief minister of Maharashtra state.
The declaration has revived memories of a similar, bitter row 16 years ago that led to violence, student suicides and the fall of a government.
Protest leaders eventually called off their demonstrations after the legislation to increase places in government-aided universities from the current 22.5 per cent to 49.5 per cent was referred to a parliamentary committee.
"Millions of backward classes ... have been looking forward to getting an opportunity for equitable access to institutions of higher learning maintained by the state"
Arjun Singh, minister of human resources
Vinod Patra, a member of a New Delhi doctors' association, said: "Now the bill will be taken up only in the winter (parliamentary) session" which begins in November."
Student leaders saw the decision to refer the bill for fine-tuning as a modest victory and one that would give them more time to explore legal options against the legislation.
Patra said students and resident doctors who had been staging strikes at the capital's top five government-run hospitals would end their protests.
Critics say the initiative could lower academic standards and that it would be better for the government to provide a decent basic education for the many Indian children lacking access to good schooling.
Similar protests 16 years ago had
led to massive violence
But advocates say it will give lower castes a better chance of a quality education and ensure India's booming economic growth is more "inclusive".
Analysts say the huge electoral clout of the poor means it is difficult for politicians to speak out against the quota proposals.
The legislation tabled in parliament provides for a maximum of three years to implement the new quotas.