The decision has been taken following an intervention of Home Minister Rajnath Singh as Ms Nasreen has been requesting the Indian government to further extend her visa.
The 52-year-old writer's visa was granted for a year with effect from July 23, a Home Ministry official said.
Reacting to the decision, Ms Nasreen told PTI that she was very happy even though she was expecting her visa to be extended by more than a year.
"Anyway, this is always a welcome news. I am yet to be officially conveyed (the government decision) and you are the one who broke the news to me," she said.
Taslima Nasreen, living in exile since she left Bangladesh in a cloak of secrecy in 1994 in the wake of threats to her by fundamentalist groups, was given a one-year visa by the government in 2014.
A Swedish citizen, she has been getting an Indian visa on a continuous basis since 2004.
She has also stayed in the US and Europe in the last two decades. However, on many occasions she had expressed her wish to live in India permanently, especially in Kolkata.
The writer had to leave Kolkata in 2007 following violent street protests by a section of Muslims against her works.
Ms Nasreen said if she is not able to stay on in India she will suffer from an "identity crisis" which will affect her writings and championing the cause of women's rights.
Get Breaking news, live coverage, and Latest News from India and around the world on NDTV.com. Catch all the Live TV action on NDTV 24x7 and NDTV India. Like us on Facebook or follow us on Twitter and Instagram for latest news and live news updates.