The construction of a grand Hindu temple at holy site bitterly contested with Muslims moved a step closer Wednesday when Indian Prime Minister Narendra Modi said a trust had been finalised to oversee the project.

The razing of Babri Masjid at Ayodhya by a huge crowd of Hindu zealots almost 30 years ago unleashed some of the country's worst sectarian violence since independence, with more than 2,000 people killed.

After a decades-long legal battle, India's highest court ruled in November that the land in northern India should be managed by a trust to oversee the construction of a temple.

Modi announced in parliament, to applause and chants of "Hail Lord Ram" from party supporters, that the trust has now been set up. "Let us all support the construction of a grand Ram Temple in Ayodhya," Modi said, referring to the deity it will be named after.

The temple construction had been a campaign pledge of Modi's Hindu nationalist Bharatiya Janata Party (BJP) even before the mosque's demolition in 1992.

In 2002, when Modi was chief minister of Gujarat state, 59 Hindu activists died in a blaze on a train from Ayodhya, leading to riots that saw upwards of 1,000 people perish, mostly Muslims. For critics, the temple construction forms part of Modi's alleged master plan to remould the country as a Hindu nation, something he denies.

The temple will be built on 67 acres (27 hectares), while five acres on the outskirts of Ayodhya will be handed over to a Muslim body for the construction of a mosque, the Press Trust of India reported. India's powerful Home Minister Amit Shah welcomed Modi's announcement, saying a centuries-old wait for the temple was over, and people would be finally able to worship at Ram's birthplace.