Further, a firming trend in global markets also buoyed trading sentiments.
The 30-share index surged by 212.76 points, or 0.80 percent, to 26,788.41 with auto, capital goods, healthcare, power and metal sector stocks leading the rally.
The Sensex had gained 576.31 points in the last three sessions.
In a similar fashion, the broad-based National Stock Exchange index Nifty shot up by 60.45 points, 0.76 percent, to 7,988.20.
Brokers said sentiments remained upbeat and capital inflows picked up after the government announced reforms in the oil and gas and coal sectors.
Besides, a firming trend at other Asian bourses, tracking strong gains on US markets, also supported the rally on the domestic bourses, propelled by talk of broader monetary stimulus in Europe.
In the Asian region, Hong Kong's Hang Seng index was up 0.92 percent, while Japan's Nikkei moved up by 2 percent in early trade.
US Dow Jones Industrial Average ended 1.31 percent higher in yesterday's trade.