Kashmir was rocked for months last summer by clashes between stone-throwing demonstrators and police and paramilitary troops, who used live fire to try to control massive rallies against New Delhi`s rule over the region.
About 110 protesters died in the violence, most of them young males hit by gunfire from security forces.
It was some of the worst civil unrest seen in the region`s 20-year insurgency against Indian rule.
The government will drop the cases against the youths to give them "an opportunity to be responsible persons and lead a normal life", Kashmir`s chief minister Omar Abdullah said in a statement released late Sunday.
Abdullah said the amnesty was "to remove the stigma on the character and behaviour of these youths for being involved in stone-pelting" and that it would give them a chance to find employment.
"The amnesty would be available to them as a one-time opportunity," he said, adding about 1,200 people would benefit from the ruling, which comes ahead of Eid al-Fitr, the Muslim festival marking the end of the Ramadan fasting month.
Abdullah urged those who had evaded arrest and were in hiding to report to police to register for the amnesty.
However, he said protesters accused of setting fire to government offices and vehicles during the disturbances would still be prosecuted.
Eid will be celebrated on Wednesday or Thursday in Kashmir, subject to when the crescent moon appears.
Reyaz Ahmed, 23, who was detained last year and released on bail, welcomed the announcement. "It is a big relief. I hope I will not have to appear in future court hearings," he said.
Indian Kashmir remains under heavy military control but this summer has not seen the cycle of violence and strict curfews that have hit the disputed Himalayan region in recent years. (*)