The move is likely to be seen as a reigning in of big tech firms.
Government-appointed panels will have the power to review content moderation decisions or takedowns by platforms like Twitter and Facebook, with changes to India's contentious new IT rules announced on Friday that activists slammed as an effort to censor free speech.
The change paves the way for the setting up of 'Grievance Appellate Committees', which will settle issues that users may have against the way social media platforms initially addressed their complaints regarding content and other matters, in three months.
The move is likely to be seen as a reigning in of big tech firms, which have come under increasing scrutiny in India since a clash between Twitter and the country's ruling BJP last year. Activists said the panels could mean greater government control over content online.
"The central government shall, by notification, establish one or more grievance appellate committees within three months from the date of commencement of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2022," the notification said.
Each grievance appellate committee will consist of a chairperson and two whole-time members appointed by the central government, of which one will be a member ex-officio and two shall be independent members.
"Any person aggrieved by a decision of the grievance officer may prefer an appeal to the grievance appellate committee within a period of 30 days from the date of receipt of communication from the grievance officer," it said.
The grievance appellate panel will deal with the appeal "expeditiously" and make an endeavour to resolve the appeal finally within 30 days from the date of receipt of the appeal, the order said.
Under the amended rules, the companies would be required to acknowledge complaints from users within 24 hours and resolve them within 15 days or 72 hours in case of an information takedown request.
Advocacy group Internet Freedom Foundation said the changes "cause injury to the digital rights of every Indian social media user" and called the methods of choosing appeals for their review "opaque and arbitrary".
"[The committees are] essentially a government censorship body that would hear appeals against the decisions of social media platforms to remove content or not, thus making bureaucrats arbiters of our online free speech," it said in a statement.
"This will incentivise platforms to remove/suppress any speech unpalatable to the government or those exerting political pressure and increase government control and power since the government will be effectively able to also decide what content must be displayed by platforms," the group said.
Prime Minister Narendra Modi's government has had strained relations with many Big Tech companies, and the BJP administration has been tightening regulation of firms such as Facebook, YouTube and Twitter.
Tension over social media content decisions has been a particularly thorny issue in the country, with companies often receiving takedown requests from the government or removing content proactively.
Social media firms are already required to have an in-house grievance redressal officer and designate executives to coordinate with law enforcement officials.
(With inputs from agencies)