India's cabinet has cleared a landmark anti-corruption bill draft that had been the focus of nationwide demonstrations.

The proposed law, approved on Tuesday, would create a powerful new ombudsman tasked with probing and prosecuting senior politicians and civil servants suspected of corruption.

The government also decided that the CBI, the federal investigative agency, would not be under the "Lokpal" or ombudsman, a point of contention between activists and the government.

"The bill will now be introduced in parliament and although the exact date is not clear at this moment it seems it could be tabled (in parliament) on Thursday," a government official who did not want to be named told the AFP news agency.

Activists had been threatening to stage a new hunger strike if the bill was not passed during the current parliamentary session.

Hunger strike planned

But the new draft had already been rejected by anti-corruption activist, Anna Hazare, who had announced earlier that he would go ahead with his three-day fast from December 27 followed by a three-day "jail bharo" [go to jail] agitation.

An earlier draft of the legislation prompted a 12-day hunger strike by Hazare, who said that version was a toothless measure incapable of curbing the rampant corruption it was meant to target.

His campaign brought millions of Indians onto the streets in cities across the country, in an outpouring of frustration at the country's culture of bribery and kick-backs.

The public response rocked India's coalition government, which has been tainted by a series of high-profile corruption scandals.

The main dispute has been over who would fall under the ombudsman's ambit, with the Hazare campaign insisting that it should include the prime minister, the judiciary and lower-level civil servants.