The project is set to be the first commuter aerial cable car system in Africa.
President Uhuru Kenyatta chaired a cabinet meeting on Tuesday at State House Nairobi where he made the approval.
The cable cars will among other things ease traffic jam, boost tourism and address the regular ferry breakdowns on the Likoni Channel.
The express link, to be funded by Kenyan and Austrian companies, will have 22 cable cars, which will carry 38 passengers per cabin.
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The cars will carry 11,000 commuters per hour in both directions, a total of 180,000 people daily.
It is expected that the cable cars will take two and a half minutes to cross the 500-metre stretch.
Breakdowns
At the moment, ferries currently take about 10 minutes to move passengers across the channel but frequent breakdowns have proved challenging leading to delays of close to 40 minutes.
The project is slated to be the first commuter aerial cable car system in Sub-Saharan Africa.
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The construction of the multibillion-shilling cable car is to begin before August, according to Kenya Ferry Services (KFS) MD Bakari Gowa.
KFS has already signed a 25-year concession agreement with Trapos Ltd, the project development sponsor.
