The state's chief minister, who likened the smog to a "gas chamber", has also ordered all construction work to be halted in the city for five days.
Schools in India's capital, New Delhi, will be shut over the next few days to combat the crippling air pollution that has engulfed the city.
In the past week, a thick layer of smog has blanketed Delhi, with people complaining of irritated eyes, throats and lungs and leaving local and central authorities scrambling to resolve the crisis in one of the world's most polluted cities.
"All schools will be closed for the next three days in Delhi. All construction and demolition in the city will be banned for next five days," Delhi state chief minister Arvind Kejriwal said.
The smog has spurred protests in the city as residents demand the authorities take swift steps to address what the Centre for Science and Environment, a New Delhi-based research and lobbying organisation, says are the worst conditions in 17 years.
Kejriwal, who referred to the city as a "gas chamber", has blamed crop-burning by farmers in neighbouring states for the smog.
Restrictions launched earlier this year that took around a million cars off the roads for 15 days in a bid to improve air quality could be implemented again, the chief minister warned.
He added that the use of diesel-powered electricity generators will be banned for the next 10 days and that the local administration will begin vacuum cleaning roads and sprinkling them with water.
A worsening problem
Delhi's air quality has steadily worsened over the years, a result of rapid urbanisation that brings pollution from diesel engines, coal-fired power plants and industrial emissions.
It also suffers from atmospheric dust and pollution from open fires lit by the urban poor to keep warm in winter or to cook food.
Authorities have previously responded with measures such as bans on old trucks entering the city and briefly implemented a scheme that limited use of private vehicles to alternate days according to their number plates.
However, the restrictions have been criticised since the capital's public transport system struggles to take the pressure off private vehicles.
Experts also say that those schemes have done little to reduce pollution.
The reading for pollutants in the atmosphere recently breached the 1,000 microgram mark for the first time in one neighbourhood in south Delhi - 10 times the World Health Organisation's recommended level.
A brewing fog
A combination of smoke from burning farm residue in surrounding states, fireworks for the Hindu festival of Diwali, dust from construction works and vehicle emissions has pushed up levels of dangerous particles.
These particles, known as PM 2.5, are at more than 15 times the safe limit in India and 90 times what the WHO has deemed acceptable.
Particulate Matter (PM) is a pollutant that consists of harmful chemicals such as ammonia, sulphates and black carbon, according to WHO.
Prolonged exposure to PM 2.5 can lead to harmful respiratory diseases.