Several Indian states have already banned the sale of Coke and Pepsi at schools and colleges after scientists found they were contaminated by pesticides.
Kerala is the first Indian state to ban producing or selling the drinks; its neighbour Karnataka has banned them from schools, colleges and hospitals.
"There are lots of reports which prove that these drinks have certain ingredients that are harmful to the human body," said VS Achuthanandan, Kerala's chief minister, after a cabinet meeting approved the ban.
Coca-Cola and PepsiCo could not be reached immediately for comment.
Last week, the Center for Science and Environment in New Delhi said it had found pesticide residues in samples of Coke and Pepsi that were 24 times above the limits set by the Indian government.
The centre said that tests on 57 samples taken from 11 soft drink brands made by Coca-Cola India and PepsiCo India had found a "cocktail of three to five different pesticides."
The chemicals are believed to have entered the drinks through the groundwater used in their manufacture.
On Tuesday, PepsiCo placed advertisements with several Indian newspapers saying the company follows Indian government's regulations and that the "pesticide residues present in soft drinks are minuscule."
The company also said that food will often contain residues of pesticides used by farmers.
"Our beverages in India are suitable for anyone, anywhere," said a PepsiCo statement. "We drink them. We share them with our families and friends. And we know they are safe for you."