Making a historic announcement in the Rajya Sabha that triggered bedlam, Shah said: "I am presenting the resolution to revoke Article 370 in Jammu and Kashmir except the first clause 370 (1)."
Following his speech amid bedlam, the House was adjourned.
In a separate statement, Shah said the government had proposed to reorganize Jammu and Kashmir carving out two separate Union Territories of Ladakh and Jammu and Kashmir.
He said this had been done in view of constant threats of cross border terrorism.
The Union Territory of Ladakh was a long pending demand of the people of the region and the decision was aimed at fulfilling the aspiration of the local population, the Minister said.
Two members of the Peoples Democratic Party (PDP), Nazeer Ahmed Laway and Mir Mohammad Fayaz, were shunted out of the Rajya Sabha after they removed copies of the Constitution.
PDP leader Mehbooba Mufti described the decision to scrap Article 370 as "the darkest day in Indian democracy".
"Decision of J&K leadership to reject 2 nation theory in 1947 & align with India has backfired. Unilateral decision of GOI to scrap Article 370 is illegal & unconstitutional which will make India an occupational force in J&K," the former Chief Minister tweeted.
"It will have catastrophic consequences for the subcontinent. GOI's intentions are clear. They want the territory of J&K by terrorising its people. India has failed Kashmir in keeping its promises," she said.
( With inputs from IANS )