India's main capital market regulator has approved online share trading in a move designed to boost the country's equity markets.

The body also announced that individuals and foreign investors would be allowed to invest in Indian shares up to 5% of a company's total equity.

The head of the Securities and Exchange Board (Sebi), D R Mehta, announced internet share trading could take place in India "within the existing legal framework - although cyber laws need strengthening".

However, online trading would still have to be done through brokers.

Mr Mehta said the necessary guidelines would be issued to various exchanges and brokers, who could then decide when they wanted to start.

A Sebi panel submitted a report on internet stock trading in December recommending procedures and other details for domestic stock exchanges.

The country's biggest exchange - the National Stock Exchange (NSE) - has got the necessary software, and is currently testing interconnectivity with brokers' systems.

The Bombay Stock Exchange (BSE) should be ready in another month and a half and is currently in the process of developing a central web server which can be accessed by all brokers registered with the exchange.

According to some analysts, the introduction of internet trading should boost business volumes and further fuel a bull run on the Indian markets.

However, the BBC's Sanjeev Srivastava in Bombay says other analysts are not so optimistic.

He says they believe that the country's internet infrastructure is still not advanced enough, and that effective online trading will be difficult until banks, brokers and exchanges are all successfully interconnected.

India is believed to have about 30m domestic investors at the moment.