The court directed the Central government to form a committee within six weeks to oversee the construction work.
Appealing "let there be peace", the court also directed to release all people, arrested during the protest demanding construction of temple, on personal bonds.
A bench of Justices Arun Mishra and S. Ravindra Bhat allowed the Central government's proposal to increase the area to be allocated for Ravidas shrine.
Attorney General K.K. Venugopal told the court that the Centre is ready to allocate 400 square metres of land.
The top court has, however, directed not to carry out any commercial activities including paid parking in the temple.
The government told the court it has paved way for construction of temple to respect the sentiments of devotees.
Earlier, the Attorney General told the court that the Central government has agreed to give the land to devotees considering sensitivity and faith, after holding a consultation with all concerned parties including devotees and government officials.
The temple was demolished by the Delhi Development Authority (DDA) on August 10 following the top court's order.
On October 4, the Supreme Court asked all parties (seeking reconstruction of temple) to hold consultation with the Attorney General and to come out with a good solution amicably.
( With inputs from IANS )