The minister, who visited the area, spoke to the affected families and also Tahsildar and Revenue officials.
The Sirukudi Panchayat had demolished the houses on August 15 and 18 alleging it was constructed after encroaching a public road.
Chidambaram said these houses should have been built on patta land and noted the demolition took place in the presence of the Panchayat President and her husband with police help.
He thanked the Tamil Nadu government for distributing relief to the affected families, but said the amount was inadequate.
"The amount is not enough. Besides giving additional compensation, the government should build new houses for them", he said.
