The decision was taken at a meeting of the Union Cabinet presided by Prime Minister Manmohan Singh in New Delhi, sources said. The Cabinet recommended to President Pratibha Patil to lift the President's rule from Meghalaya.
The state was brought under President's Rule on March 19 after the Donkupar Roy-led Meghalaya Progressive Alliance government won a confidence vote in controversial circumstances.
The 60-member assembly, where the Congress has 26 Members of Legislative Assembly and the Nationalist Congress Party 14, had been kept under suspended animation since then.
The Centre's move came after Congress and NCP decided to join hands to provide a "stable government in the interest of the people of the state."
The new coalition government is likely to be headed by veteran Congress leader and former chief minister D D Lapang. As per the arrangement between the two parties, Congress will get the post of the Chief Minister and Assembly Speaker, and NCP will get Deputy Chief Ministership, sources said.
Political crisis gripped Meghalaya after two ministers resigned and two Independents withdrew support to Donkupar Roy-led Meghalaya Progressive Alliance government reducing it to minority in the 60-member house.
A trial of strength was held on March 17 but it became controversial as Speaker B M Lanong cast his vote when there was a 27: 27 tie during division.
The tie-breaker came after the Speaker declared invalid the votes cast by four of the five members he suspended hours before the trial of strength.
The action reduced the Congress tally, which had gone up to 31, to 27. In view of lack of clarity about whether the Roy government enjoyed confidence, the Union Cabinet on March 18 recommended to impose the President's rule. A day after, the President imposed the Central rule in Meghalaya.