No other state has issued a similar order banning new licences to medical shops.
The move, meant to stop unhealthy trade practices among chemist shops in the same locality, is seen by many as 'non tenable' in the court of law.
This is the second time Kerala is attempting to restrict the number of medical retail outlets in the state. The previous decision to ban new shops was stuck down by the Kerala high court some years ago, after some entrepreneurs who wanted to enter the trade questioned the government decision.
While officials say the state has reached a saturation level in the case of medical shops and fresh additions will encourage unethical trade practices, a section of retail traders say the government is playing into the hands of organised medicine trade associations in the state.
Kerala, the country's biggest pharmaceutical retail market, records an annual sale of medicines worth Rs 1,500 crore (Rs 15 billion).
A N Mohan, president of the All Kerala Chemists and Druggists Association, said: "The association welcomes the decision to put an end to the mushrooming of medicine outlets in the country."
He said that the association had asked for some restrictions to curb unhealthy competition among medicine retail trade.
"We had wanted the department to stop giving new medical shop licences within a 100-metre range of an existing one in the municipal areas. Similarly, the distance limit suggested by us for cities was 50 metre," he said.
State drugs controller M P George said the authority had powers to ban new medical shops under the Drugs and Cosmetics Act."We have exempted government-run fair-price medicine shops like Neeti and Maveli from this ban. Similarly, hospital pharmacies are also exempted," George said.
There are about 1,300 registered medicine outlets in the state.