The Sterlite unit which has been shut down since March 27, employs close to 3,500 workers and provides jobs indirectly to more than 20,000. Vedanta Resources, a London-listed company that owns the plant was planning to double its operations, but locals started to protest with demonstrations turning violent.
The ruling came just hours after Tamil Nadu's pollution board ordered the existing plant be shut and its power supply cut until a verdict is made on its licensing application.
MK Stalin and other DMK MLAs arrived in Tamil Nadu assembly on Tuesday wearing black clothes as a mark of protest against police firing on anti-Sterlite protestors in Thoothukudi.
Recalling the steps taken by the government for closing down the plant, he said way back in 2013, the copper plant was shut by late chief minister J Jayalalithaa.
For Sterlite, which claims it has adhered to every rule in the book, and blames its current woes to vested interests, things turned for the worse when protests in Thoothukudi turned violent last week, resulting in the death of 15 people after police opened fire.
Residents of the port city of Thootukudi, located at the tip of the Indian subcontinent, and environmentalists have been demonstrating for more than three months against the copper plant, one of India's biggest, alleging that it is a major source of pollution and a risk to fisheries.
The head of the national opposition Congress party, Rahul Gandhi, condemned the use of lethal force, calling it "a brutal example of state-sponsored terrorism". "The situation is tense but under control today", he said.
Chief Minister K Palaniswami said the government has issued the GO obliging the sentiments of the people.
The families of each victim would be offered 1 million rupees (£11,000) compensation, he added.
Police said efforts to disperse the crowd of several thousand with a baton charge and teargas volleys failed before authorities used live ammunition.
A spokeswoman for Vedanta Resources said it had witnessed the deaths at the protest "with great sorrow and regret". The clearance was given after the company argued that since the upcoming second unit was within the State Industries Promotion Corporation of Tamil Nadu Ltd (SIPCOT) industrial area that already had an environmental clearance, the company did not need to hold public hearings to get another clearance.
"It's important that the Tamil Nadu authorities respond to protests in accordance with global law, but they should also be addressing concerns raised about health and environmental harms", Ganguly said.