The meeting will be held at the official residence of the prime minister here Wednesday.
Before that, a meeting of the Congress core group, which includes party chief Sonia Gandhi and the prime minister, is also expected, the sources said.
The prime minister, who is returning from the US, is expected to arrive in New Delhi Tuesday night.
The cabinet meeting comes in the backdrop of Congress vice president Rahul Gandhi's public outburst against the ordinance, which aims to save convicted lawmakers from disqualification.
The ordinance is currently with President Pranab Mukherjee after the cabinet cleared it Sep 24.
Before that it had been cleared by the Congress core group.
Though reversing its own decision and withdrawing the ordinance would not be an easy decision for the cabinet, party sources said there was not much option left before the government.
Congress spokesperson Sandeep Dikshit had Monday said the party expected the government to consider Congress' viewpoint on the ordinance.
Earlier, moments after Rahul Gandhi had trashed the ordinance, Congress chief spokesperson Ajay Maken had said the party too opposed the law.
While it may not be difficult for the prime minister and the Congress ministers to toe the line given by Rahul Gandhi, convincing the allies may take some effort, said the sources.
Congress allies Nationalist Congress Party and the National Conference have asked for a UPA meet before the cabinet takes a call on the fate of the ordinance Wednesday and Congress sources said if the ordinance is withdrawn, it will send a positive message of clean politics on a day which will be celebrated as the birth anniversary of Mahatma Gandhi.
Bharatiya Janata Party (BJP) leader Arun Jaitley said the government was trying to play "a clever political card" by bringing an ordinance to shield convicted lawmaker, but the move backfired.
"They went ahead with the ordinance because they thought the way the Bihar situation is developing they will have more than one option," Jaitley said in an interaction with journalists at the Indian Women Press Corps (IWPC).
"They were playing a clever political card but it backfired. It is not the time when people will accept a legislation like this to shield convicted lawmaker. The government should have thought about it," he said.
--IANS (Posted on 01-10-2013)