Blackstone, which in late 2007 announced a $150 million deal to buy shares and warrants in Nagarjuna, had to drop the purchase of 9.1 million warrants after it did not get approval from the Foreign Investment Promotion Board, the Indian firm said in a statement.
Blackstone, which has invested more than $730 million in India since its arrival in 2005, declined to comment.
The firm has invested in seven Indian firms, its website showed. It owns 9.3 percent of Nagarjuna, according to stock exchange data.
Nagarjuna Construction officials could not be reached immediately.
Last year, Blackstone's planned $275 million investment in unlisted Ushodaya Enterprises failed to get finance ministry approval.
Analysts said the regulatory block was a one-off and did not point to a trend for private equity investment in India.
It is very rare that something like this happened. It does not in anyway denote that regulatory approvals could trouble the PE industry, said Arun Natarajan, chief executive of deal tracking firm Venture Intelligence.
Blackstone bought the Nagarjuna Construction stake at 202.50 rupees near the peak of an extended bull run in Indian stocks.
The warrants were to be executed at 225 rupees or almost 90 percent higher than the current stock price.
Shares in Nagarjuna Construction, which plans to raise up to 5.5 billion rupees by selling shares to institutions, fell 3.5 percent on Monday to 119.95 rupees in a weak Mumbai market.
(Reporting by Narayanan Somasundaram and Aniruddha Basu; Editing by John Mair)