An official source told IANS that government will contest the award as taxation is its its sovereign right.
Further, the Centre will also contest other suits filed by Cairn Energy at various other international courts.
The government, however, will keep options open for an out of court settlement, which the people in the know said, will be under the framework of Indian laws and under the existing provisions which include the direct tax resolution framework of Vivad Se Vishwas.
Sources said that Cairn had conducted transactions through tax havens to evade taxes, and the government does not want to loosen the grip on such matters.
The development gains significance as Cairn CEO Simon Thomson is in India and already in talks with the government to reach an amicable solution.
After his meeting with Finance Secretary Ajay Bhushan Pandey among other officials on Thursday, Thomson said that the talks were "constructive".
In December, Cairn Energy won an international arbitration case against the Indian government which claimed Rs 10,247 crore in past taxes over internal reorganisation of Cairn's India business.
The tribunal in the Netherlands awarded damages of $1.2 billion towards Cairn along with interest and costs, payable by the government.
Cairn Energy had, in 2010-11, sold Cairn India to Vedanta. Post the merger of Cairn India and Vedanta in April 2017, the UK firm's shareholding in Cairn India was replaced by a shareholding of about 5 per cent in Vedanta issued together with preference shares.
Along with attaching its shares in Vedanta, the Tax Department seized dividends of around Rs 1,140 crore due to it from the shareholdings and set off a Rs 1,590 crore tax refund against the demand.
In 2015, Cairn initiated an international arbitration to challenge retrospective taxation.
Recently, Minister of State for Finance, Anurag Thakur told the Parliament that the order passed in Cairn Group's case is under consideration of the government.