"Chief Minister Nitish Kumar has decided to accord state funeral to Shastri," an official spokesman said.
Shastri died after protracted illness at his residence in Bihar's Muzaffarpur town, about 85 km from here, late last night.
He was today cremated in Muzaffarpur, family sources said. He is survived by wife Chhaya Devi and an adopted daughter.
Conferred with Padma Shri, India's fourth highest civilian honour, in 2010, Acharya Shastri is the author of many well-known stories, novels, plays, essays, ghazals, songs and biography in Hindi besides being a critic.
His famous works include Roop Aaroop, Teer Tarang, Meghgeet, Pashani, Tamsa and Iravati.
He had been conferred various awards like Rajendra Shikhar Samman, Bharat Bharati Award and Shivpujan Sahay Award.
Bihar Chief Minister Nitish Kumar said Shastri's death has created a vacuum in the field of writing in India, particularly in the state.