Security forces in Indian-administered Kashmir have been told to move out of schools and hospitals which they have occupied in the region.
A meeting attended by federal defence minister AK Antony decided that the forces have to move out by 30 November.
Many schools, health centres, and government buildings have been occupied by security forces since the outbreak of armed conflict on the late 1980s.
India and Pakistan have fought two wars over Kashmir.
Security forces have also been told to vacate a health resort in Kukernag in southern Kashmir, and a club in the capital, Srinagar.
The federal defence ministry has, however, not agreed to withdraw troops from private lands and orchards which they are occupying.
Mr Antony said the government would consider revising rent for these lands.
The second largest party in the ruling coalition in Kashmir, the People's Democratic Party, has been demanding withdrawal of Indian army from internal security duties and its replacement by the local police.
The federal government has ruled out any reduction in the number of troops for now.
The issue has soured relations between the coalition partners, at times threatening the stability of the state government itself, says the BBC's Altaf Hussain in Sringar.
Since a 2003 ceasefire, India and Pakistan have been holding regular peace talks.
But they have made little progress over the Kashmir dispute.