The government had already approved plans for a human space flight project by the Indian Space Research Organisation (ISRO), and last year gave the go-ahead for funding of around $2.8 billion.
ISRO chairman K. Radhakrishnan said the agency would develop the space module for the program within four years.
"We are planning a human space flight in 2016, with two astronauts who will spend seven days in the Earth's lower orbit," Radhakrishnan told reporters at ISRO headquarters in Bangalore.
The space agency will also establish a facility in Bangalore for training the astronauts and build a third launch pad at its spaceport in the southern state of Andhra Pradesh.
In September, India's Chandrayaan-1 satellite discovered water on the moon, boosting India's credibility among established space-faring nations.
India began its space program in 1963 and has developed its own satellites and launch vehicles to cut dependence on overseas agencies.