PM Manmohan Singh said the regulator would also ensure the compliance of "green norms" by industry.
India's environment ministry has been often embroiled in controversy over how to balance development with the preservation of the environment.
This has led to the delay of a number of projects across the country.
Announcing the setting up of the independent National Environment Appraisal and Monitoring Authority, Mr Singh said it will "lead to a complete change in the process of granting environmental clearances".
Correspondents say Mr Singh's move follows the stalling of several industrial and mining projects after the environment ministry refused to clear them.
Mr Singh said that economic growth should accommodate environmental concerns. Read the full report here.
Source: BBC News, U.K.