Primary industries minister Daya Gamage said the cabinet had ratified his proposal to outlaw the import of a cheaper variety known as "cassia cinnamon."
He said he took the step after several container loads of the fake cinnamon that had been imported from Madagascar were found.
"Cassia looks similar to the real thing, but it is inferior in quality and cheaper than Ceylon cinnamon," the minister said in a statement. "When it is re-exported as real cinnamon, it damages our reputation."
The aromatic spice -- used in both savoury dishes and desserts -- was native to Sri Lanka. Dutch invaders grew it on a commercial scale in the 17th century for export.
The commodity which brought in over $150 million in the first 10 months of this year is known by the country's colonial era name "Ceylon."
Sri Lanka's cinnamon industry, which supplies about 85 percent of the world market, is enjoying high earnings. Top-grade cinnamon oil, extracted from the bark, fetches over USD 510 a kilogramme ($232 a pound).
Cinnamon oil is used in fizzy drinks as well as in the manufacture of high-end perfumes.