The proposal was given by the BJP government in Uttar Pradesh, in a bid to revive the legacy of Upadhyaya, who died in 1968 in the junction itself.
Minister of State for Home Affairs Hansraj Ahir cleared the proposal today, the home ministry official said.
The move led to an uproar in Parliament after several MPs including Samajwadi Party's Naresh Agarwal protested against the Centre's decision to give nod to renaming the junction after Upadhyay.
The Uttar Pradesh government, headed by Yogi Adityanath, had in June approved the proposal of renaming the station and forwarded it to the Ministry of Railways for final approval.
Upadhyay's body was found under mysterious circumstances on a platform of Mughalsarai in 1968. The town is part of Chandauli district and is just 20 km from Varanasi.
Mughalsarai is also the birthplace of former Prime Minister Lal Bahadur Shastri.
The station contains the largest railway marshaling yard in Asia. It is 12.5 km long and handles around 1,500 wagons daily. The largest wagon repair workshop of the Indian Railways is also located here.
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