Protests have rocked Hyderabad Central University campus and spread across the nation since Rohith Vemula's suicide on Sunday.
The suspension of four Dalit students who were barred, along with Rohith Vemula, from accessing the library, cafe and hostel has been revoked
four days after Mr Vemula hung himself on campus.
Mr Vemula's suicide has caused political and public uproar, with students and the opposition alleging that he was persecuted by caste discrimination. The government has denied this.
Education Minister Smriti Irani attributed "malicious intent" and alleged "a misrepresentation of facts" while proclaiming Mr Vemula's tragedy was not the end point of a caste battle.
Today's decision to cancel the suspension of Mr Vemula's friends came after 15 Dalit teachers resigned this morning, accusing Ms Irani of distorting the facts related to Mr Vemula's death. Hours later, they said they will remain at work to help students who need their support. But a sharp backlash from students accusing them of selling out led to a change of heart and most of them now say they will stick with their resignations.
In August, Mr Vemula, a 26-year-old research scholar, and four of his friends, all members of the Ambedkar Students Association at Hyderabad Central University,
clashed with the ABVP, a student wing linked to the BJP. Susheel Kumar of the ABVP alleged that he had been assaulted and filed a police case against Mr Vemula and the other lower caste students.
A preliminary inquiry found no wrong doing by the members of the Ambedkar Students Association; a second investigation found the opposite, leading to the students being suspended.
Dalit teachers at the university say that Ms Irani has incorrectly said that the second inquiry was headed by a Dalit teacher. They say their association was given token representation on the committee that studied the incident.