The court has ordered the Odisha government to share details of the mining proposal with the gram sabha.
The gram sabha has to make up its mind in three months and share its decision with the Environment Ministry.
The ministry had refused clearance for the Vedanta group's massive bauxite mining project in the Niyamgiri Hills in August 2010.
It withdrew clearance after the N.C. Saxena committee warned that mining in Niyamgiri will severely affect the ecology and the habitat of the primitive Dongria Kondh tribe that lived on the mountain slopes.
The state-owned Odisha Mining Corporation, which has a joint venture with Sterlite, a Vedanta group company, had challenged the environment ministry's withdrawal of clearance in the Supreme Court.
The Supreme Court had in 2008 given permission to Sterlite India for the diversion of 660 hectares of forest land in the Niyamgiri Hills for mining bauxite.
The Centre also withdrew earlier permission given to Vedanta to expand its 1 million tonne alumina refinery to 6 million tonnes at the Lanjigarh block of Kalahandi, also in Odisha.
Vedanta shut down its Lanjigarh alumina refinery on December 5 last year, citing shortage of bauxite.
According to their agreement, Odisha Mining Corporation was supposed to supply up to 150 million tonne of bauxite for the Lanjigarh Refinery from bauxite mined in the Niyamgiri Hills, but was unable to do that because of the ban.
Vedanta has claimed that in the last five years of curtailed operation, the company has lost about Rs. 2,500 crore on an investment of Rs. 5,000 crore at the Lanjigarh plant.
The Supreme Court has said that it's up to the local village body or gram sabha that governs the Niyamgiri Hills in Odisha to decide the Niyamgiri Hills are a religious abode of the local tribals. Once this decision is taken, the Ministry of Environment and Forests will decide on the clearance for mining. The gram sabha has three months to decide and a ban on mining in the area will stay till then.