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India will continue to buy "cheap oil" from Russia but has not finalised terms of the discount, a senior government official familiar with the matter said on Wednesday.

"We will get cheap oil from Russia," the government official told reporters on Wednesday, adding that the average price at which the world's third largest oil importer buys crude is currently above $100 a barrel.

With concerns that conventional payment routes could be blocked due to Western sanctions on Moscow, including on banks, work was ongoing to set up a rupee-rouble trade mechanism to facilitate transactions, the official said.

Without elaborating further, the official added that no final decision had been taken and all possible ways to pay for goods were still under discussion.

While Russia's oil exports have not to date fallen under Western sanctions, some international traders have avoided buying the barrels given the disruption to payment systems and shipping.

The official also said India was increasing its dependence on coal due to surging power demand, adding that state-run Coal India will produce more coal in the coming months.