The rules impose a three-tier regulatory mechanism, requiring a grievance officer to resolve complaints and a government panel to have broad oversight. The most senior government official in the Information and Broadcasting Ministry will also have emergency powers to order content be blocked.
Media representatives fear such oversight could lead to censorship of content seen as critical of Prime Minister Narendra Modi's Hindu nationalist government.
Three digital news outlets have already filed legal challenges against the new regulations.
"This goes against the constitutional guarantees of press freedom. The government's new IT rules seek to dictate content to digital news media platforms and need to be struck down," M K Venu, co-founder of news website The Wire, told DW. Its publisher has challenged the regulation in the Delhi High Court.
India launches new online rules
'Desire to control online conversation'
Pavan Duggal, a cyberlaw expert, told DW that there will be more legal challenges.
"I think the government is trying to bite off more than it can chew. Surely there will be more legal challenges when the rules have the effect of surpassing what the IT Act is trying to regulate," he said.
LiveLaw, a legal news website, has challenged the rules in the Kerala High Court, which last week said no coercive action should be taken against the website for non-compliance.
The LiveLaw petition says the government's move imposes a disproportionately onerous set of administrative regulations upon digital news media, which will make it virtually impossible for small or medium-sized publishers to function.
"These rules are a clear illustration of a desire of the government to control the online conversation. And this is coming at the cost of increasing political control, chilling our voices online and hurting individual privacy," Apar Gupta, executive director of the Internet Freedom Foundation, told DW.
Tension between government and digital platforms
The Indian government says the new rules are aimed at achieving parity between digital media and print and TV news regulations, but critics have long accused Modi's government of clamping down on free speech and silencing opponents in the world's largest democracy.
US think tank Freedom House recently said Modi and his party are driving India toward "authoritarianism."
But the company stopped short of complying with demands to block accounts that belonged to activists, politicians and journalists, arguing that such a move would "violate their fundamental right to free expression under Indian law."
Twitter's decision to not remove certain accounts has unnerved the government, which has served the company with a noncompliance notice and threatened its officials with a fine and imprisonment of up to seven years for violating the order.
A member of India's ruling party's youth wing last year lodged a police complaint against Netflix objecting to scenes in the series "A Suitable Boy" showing a Hindu girl kissing a Muslim boy against the backdrop of a Hindu temple.
Amazon recently became embroiled in legal cases following allegations that its political drama "Tandav" depicts Hindu gods in a derogatory manner.
'Arbitrary and problematic rules'
Industry executives and rights activists say such complaints go against freedom of speech and expression in the country.
"These proposed rules for digital news platforms are arbitrary and problematic. You cannot have a government body remove content which it perceives as problematic," Prasanth Sugathan, legal director of the Software Freedom Law Center, a Delhi-based digital rights group, told DW.
Last week, Information and Broadcasting Minister Javadekar said on Twitter that a group representing leading newspapers and TV channels had welcomed the new regulation and asked that their members "be treated differently" from digital-only news publishers.
That has drawn criticism from some smaller digital news outlets, which have questioned why they are being ignored while seeking exemptions.