The Union Finance Ministry has given its nod to a proposal to convert debt-ridden Vodafone Idea's about Rs 16,000 crore interest dues liability payable to the government into equity, which will amount to around 33 per cent stake in the company.

The Rs 16,130-crore liability is the accrued interest on Vodafone Idea's accumulated licence and spectrum usage charge (SUC) dues levied on Adjusted Gross Revenue (AGR) and deferred spectrum payments up to FY17.

Under the terms of the government's rescue package for the telecom sector, the telecos had the option to convert these statutory dues into government equity.

Vodafone Idea had opted for the option earlier this year in January.

If the plan goes through, then the government will become one of the biggest shareholders in the company which is reeling under a debt burden of about Rs 1.98 lakh crore.

The ball is now in the telecom department's court, which has to finalise the transaction as per the rescue package.

"It (the equity conversion) has received the finance ministry's nod in line with the approved (telecom relief) package," an official aware of the developments was quoted in a Economic Times report as saying.

Separately, the telco will also have to inform the telecom department by 16 September if it would also opt to convert accrued interest on deferred licence fee dues for FY18 and FY19 into equity.

If the company goes for another round of conversion and it gets approved, the government stake in the telco could go up an additional 5-7 per cent, apart from the currently expected 33 per cent.