According to a civil aviation ministry spokesperson, staff that were involved in clearing the aircraft for operations were suspended, including officials from the security branch.
The minister, who contradicted Air India's denial that no lethal object was found in its aircraft, will hold a high level meeting with senior airline officials to find out the reasons for the security lapse.
Earlier in the day, the minister confirmed that a stun grenade was found in the aircraft and might have been left there after a security drill that was carried out in the aircraft before it was pressed into duty.
"It was a stun grenade that was left in the aircraft after a security drill. It is a failure that it was not spotted. An investigation has been ordered. We are going to investigate the failure and even the authorities at Jeddah airport are going to do the same," Gajapathi Raju said.
IANS was the first newswire to have broken the story about the lethal object found on the aircraft.
The minister's statement assumes significance as Air India on its part denied finding any lethal object inside the aircraft.
Air India said that the alleged 'explosive' that was found early Saturday morning was a plastic wrapper. The incident occurred on-board a stand-by VVIP aircraft that had later been pressed into commercial service.
"After a thorough screening of the aircraft, the object "was found to be a plastic wrapper", a official said.
The Jeddah Airport security cleared the Boeing B-747 aircraft - AI 965 - for further operations later Saturday morning.
The Indian security apparatus went into a tizzy early Saturday after the suspicious object, initially presumed to be an explosive, was found by the cabin crew on the Mumbai-Hyderabad-Jeddah flight at its termination point.
"We have already formed a committee to look into the matter of how such an object, though harmless in nature, come on board. The aircraft was secured and cleared by the airport authorities in Jeddah," a senior Air India official told IANS in New Delhi.
The committee includes the AI Joint Managing Director and the Commissioner of Civil Aviation Security.
"At no point of time was the safety of the passengers on the aircraft compromised," AI said in a statement.
The aircraft was on stand-by for use by Prime Minister Narendra Modi in case his regular aircraft developed any last-minute snags during his US visit.
It was kept in complete readiness at Indira Gandhi International Airport, New Delhi, and released Friday for commercial operations after Modi's return to India.