If the interceptor missile, the medium-range and nuclear-capable Prithvi II missile, can be transformed into a viable defense system, it would push India into an elite club of nations with working missile shields.
Such a system would vastly boost India's defensive capabilities, especially against neighboring Pakistan. The longtime rivals are both nuclear-armed.
"The country today achieved a significant milestone in missile defense system," the Defense Ministry said in a statement. "It acquired the capability for air defense against incoming ballistic missile threats at 10:25 (0455 GMT) hours this morning."
According to the ministry, the first missile, a modified Prithvi II simulating the "adversary's missile," was launched from the Chandipore test range about 250 kilometers (155 miles) north of Bhubaneswar, capital of India's Orissa state.
The interceptor, also a Prithvi, was fired one minute later from the Wheeler's Island missile testing center. The island is in the Bay of Bengal, about 170 kilometers (105 miles) north of Bhubaneswar.
In July, India reported a successful test firing of the longer-range Agni II nuclear missile for a full day before acknowledging the test failed, with the missile plunging into the sea short of its target.
But this time Defense Minister A. K. Antony was quick to convey "his heartiest congratulations" to the development team, the statement said.
The test caught observers by surprise, particularly the use of the Prithvi, which until now had been used only as surface-to-surface missile.
A successful missile kill would represent a major advance for India, analysts said.
"The technology is hard and you have to be working for years," said Robin Hughes, the deputy editor of Janes Defense Weekly. "If they have done that in the first test, it is an exceptional advance in technology."
However, the true capabilities could only be known once India revealed further details about the system, he said.
Most of the technology was home grown and was "validated through this successful mission," the defense ministry statement said.
The nuclear-capable Prithvi II can carry a conventional payload of up to 500 kilograms (1100 pounds) and has a range of 250 kilometers (155 miles). The move to modify it comes after the repeated failure of India's Trishul anti-missile project.
Monday's test also represented a victory for India's domestic missile program.
"This has great political significance for the DRDO since the recent avalanche of failures, so this success is important for them," said Gen. Ashok Mehta, a retired officer and military commentator.
However, he noted that it was only the first step in a process that would require at least 30 successful tests before the system could be brought online.
India has also been in talks with the Israel, the U.S. and Russia to buy a proven anti-missile defense system, and the Press Trust of India news agency quoted an unnamed defense officials as saying India would still pursue such options.
Mehta said the test was also a message to Pakistan, which does not any similar capacity.
The interceptor test comes a week after the firing of a single Prithvi II missile, and 10 days after Pakistan carried out a similar test of its nuclear-capable Ghauri missile, also known as the Hatf 5.
The competing missile tests came after the countries concluded a crucial round of peace talks in New Delhi aimed at resolving their differences, including the thorny issue of their territorial dispute over the Himalayan region of Kashmir.
India routinely test-fires missiles it is developing for military use, as does Pakistan. Both countries are usually informed ahead of time of the other's tests.
The official said that some 3,000 people from five villages within a radius of 200 kilometers (125 miles) from Chandipore were temporarily evacuated as a precaution while the test took place.