The announcement was made by the CM on the last day of the state legislatures winter session in Nagpur on Tuesday.
The package will be beneficial to the farmers who own more than 5 acres land and those who have paid their loan regularly, Chavan told the Assembly.
However, Chavan did not indicate how the state government would mobilise the resources for this farm loan waiver.
The states finances are already under strain due to the decision to accept the Sixth Pay Commission recommendations. The government had made a provision of around Rs 10,000 crore (Rs 100 billion) for implementation of the Sixth Pay Commission recommendations.
Under the package, loans up to Rs 20,000 of all the farmers who have more than 5 acres land have been waived off completely, while farmers who have loans of more than Rs 20,000 will have to pay only for the amount above Rs 20,000.
Farmers who have paid their loans regularly in the past and took crop loan for the Khariff season earlier this year will be eligible for getting the same benefits.
Besides, farmers who have defaulted on loan payments before April 1, 1997, and who were not covered by the central governments package, will also get the benefit under the state governments package.
This takes the number of farmers who had benefited from either the state or central government package to 7.8 million and the total loan amount waived to around Rs 14,000 crore (Rs 140 billion).
As the central governments package benefited only around 40 per cent of farmers from Vidarbha due to higher landholdings in the region, the state government was under tremendous pressure to announce a separate farm loan waiver to supplement the central package.
The Opposition parties had organised a number of protests over the last few months to demand a separate package.