The decision was taken at a meeting of the state cabinet presided over by Kumar, Principal Secretary Cabinet Coordination Department Brajesh Mahrotra told reporters.
The Bihar State Panchayati Raj Act, 2006 had made it compulsory for a candidate in the local bodies poll to have a toilet at home as an eligibility criteria.
The election to local bodies in Bihar is scheduled for next month.
Meanwhile, senior BJP leader Sushil Kumar Modi, who had made a request to the state government for waiver of the clause, expressed happiness over the cabinet decision.
In another important decision, the state cabinet gave its nod to a proposal of finance department to increase VAT on petrol and diesel from existing 20 per cent to 30 per cent, Mahrotra said.
An additional Rs 330 crore would be mobilised annually by increasing the surcharge, he said.
The Nitish Kumar cabinet also okayed a proposal to increase dearness allowance by 11 per cent to employees and pension holders with effect from July 1, 2015, he said.
The Bihar cabinet also gave green signal to creation of 46 posts of different levels of Bihar Vikash Mission headed by Advisor to the CM Prashant Kishor for implementation of CM's "seven resolves".
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