The Sensex shot up by 260.68 points, or 0.96 percent, to hit an all-time high of 27,358.85, surpassing its previous record of 27,354.99 touched on September 8.
The National Stock Exchange index Nifty also jumped by 76.75 points, or 0.94 percent, to trade at 8,167.20, just 13 points shy from its all-time high of 8,180.20 reached on September 8.
The major gainers which supported the key indices were Infosys, Tata Consultancy, Reliance Industries, Maruti, Gail, HDFC, L&T, ONGC and Wipro.
The government had yesterday relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and easing the exit norms.
Among other significant blue-chips, realty major DLF Ltd shot up by 3.70 percent, Unitech (6.18 percent), HDIL (4.10 percent) and Sobha Developers (1.62 percent).