The ban cuts off a huge future market from e-cigarette makers at a time when the number of people smoking worldwide is declining. It could dash the expansion plans of companies such as Juul Labs and Philip Morris International in the country.
"These novel products come with attractive appearances and multiple flavours and their use has increased exponentially and acquired epidemic proportions in developed countries, especially among youth and children," India's health ministry said.
The ban also covers the production, import and advertising of e-cigarettes - but not the use of them. It comes at a time when vaping is facing increased scrutiny in other countries.
The United States last week announced plans to remove flavoured e-cigarettes from stores, warning that sweet flavours had drawn millions of children into nicotine addiction.
The Indian prohibition will be imposed through an executive order and will include jail terms of up to three years for offenders.
India has 106 million adult smokers, second only to China in the world, making it a lucrative market for companies making vaping products such as US-based Juul and Philip Morris, which manufactures a heat-not-burn tobacco device.
The ban was announced by Finance Minister Nirmala Sitharaman at a news conference, where she showed various types of products to the media, including a Juul vaping device, which resembles a USB flash drive.
Juul had plans to launch its e-cigarette in India and has hired several senior executives in recent months. Philip Morris also has plans to launch its heat-not-burn smoking device in India, Reuters has reported.
A spokeswoman for Juul in India declined to comment. Philip Morris did not respond to a request for comment.
Juul, in which tobacco giant Altria group owns a 35% stake, is already facing government scrutiny in its home market and elsewhere. In China, Juul said on Tuesday its products were not currently available on e-commerce websites, days after it entered the market.
Advocates for e-cigarettes say vaping, which usually involves inhaling a vapour formed from heating up a liquid containing nicotine, is far less harmful than smoking tobacco.
But many tobacco-control activists are opposed to the devices, saying they could lead to nicotine addiction and push people towards consuming tobacco.
More than 900,000 people die each year due to tobacco-related illnesses in India, home to about 1.3 billion people.
The Association of Vapers India, an organisation that represents e-cigarette users across the country, attacked the government's decision, saying it would deprive millions of smokers of a safer solution to cut back on smoking.