However, the LG office said that Mr Baijal had "advised" the city government keeping in mind the interest of students so that they do not face any legal and financial complications in future.
Mr Sisodia, who also holds the education portfolio, said that the LG has asked the city government to consult the Centre before the scheme, introduced in September 2015, is approved.
Addressing a press conference in Delhi, the deputy chief minister said that keeping "political rivalry" aside, the Lt. Governor should approve the file pertaining to the scheme.
"The Lt. Governor has blocked education loan scheme by asking the government to consult the ministry concerned through Union Home Ministry. Advice from the Centre means scheme has halted for years. Why should the Delhi government consult the Centre? We are providing loans to students from the Delhi taxpayers' money," Mr Sisodia told reporters in Delhi.
Responding to Mr Sisodia's allegations, the LG office said, "The LG has always supported such initiatives. In this case, law department had expressed some reservations."
"Hence, the LG had only advised the education department to consult the concerned ministry in GoI, which may have prior experience of such schemes, about the soundness of the scheme so as to avoid any legal and financial complications in future in the interest of students."
"It is reiterated that there has not been any rejection of the scheme," it stated.
Under the scheme, students are provided loans up to Rs 10 lakh by banks with the government as a guarantor.
Thereafter, the government had sent the file to Mr Baijal for his approval.
Mr Sisodia claimed that due to the LG's move, the Delhi government will not be able to act as guarantor of students who want to avail loan under the initiative.
Chief Minister Arvind Kejriwal also appealed to the LG to approve the scheme, saying it ensures best quality education to poor students.
"LG Sir, it's our duty to ensure best quality education to poor kids also. They too deserve it. Education Loan wud ensure that (sic)," Mr Kejriwal tweeted.
Mr Sisodia said he would appeal to the Lt Governor to approve the scheme.
The AAP government has also proposed to extend the scheme to Delhi students who are pursuing higher education in other state-run institutions.
The LG office and the AAP dispensation have been at loggerheads over a range of issues, including opening of mohallas clinics and transfer and posting of officials.
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