He was 77 and is survived by his wife, Santha, son Manu varma, a television actor and daughter Priya.
His son-in-law is a noted director, Viji Thampy.
Varma was hospitalised two days ago following complaints of Pneumonia.
An accomplished Kathakali artist, Varma was in the Kerala Police force and had retired as Superintendent of Police.
He made his debut in Malayalam films in 1978 with 'Mattoly' and went on to do memorable roles in over 500 films.
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Meanwhile, State Minister for Cultural Affairs and Cinema A K Balan said, Varma had been an integral part of Malayalam cinema for the last three decades.
He has garnered the applause of viewers through various character roles including that of police officers, the minister said in his condolence message.
Varma was not just an actor, but an artist who proved his exceptional skills in Kathakali and percussion, the minister added.
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