The bank, in a statement, said the capital strengthening transaction details will be placed before its shareholders on 15 September.
The Monte dei Paschi shareholders will then take a call on proposed sale of new shares for over €2.5bn by middle of November.
The bank noted that the latest approval follows the completion of authorisation process by DG Competition.
The capital will be used by the bank to enhance capital reserves, tap technology, and spend on early retirement expenses of a few employees.
Based on the size of the stake, the state will add €1.6bn to the capital raising, reported Reuters citing sources.
The remaining will be contributed by private investors in line with European Union (EU) state aid rules.
The capital raising is unlikely to be divided into tranches, added the sources.
In 2017, the EU gave the green light to the €5.4bn bailout of Monte dei Paschi by the state as the bank faced a capital gap of €8.1bn.
Following this, the state owned a 64% stake in the bank.
However, the state-owned bank is yet to address volatile markets. As per analysts, the bank has failed to offer a good discount on the new shares owing to its falling market value.
Further, the upcoming snap elections in Italy is expected to add to the market volatility.
Last month, Monte dei Paschi reached an agreement with trade unions to cut thousands of jobs. This will see 3,500 employees voluntarily exit through an early-retirement scheme.