The transport ministry has already completed a preliminary study with the help of the island's telecom regulator, a note submitted to the cabinet by the ministry said.
Several telecom firms had already asked permission from the railways department to build a fibre optic network on railway land.
The ministry has sought approval to tender for a private sector partner to set up an "enterprise with the co-ordination of the state and the private sector."
Sri Lanka's rail network radiates from Colombo to the north up to Jaffna, though trains now operate only to Vavuniya town as territory beyond the town is controlled by the Tamil Tigers.
Another track runs to the east towards Trincomalee and Batticaloa in the east. Tracks also go along the western coast northward