Deepa Mehta is lining up a feature version of Midnight's Children with author Salman Rushdie, whose masterpiece of magic realism about the birth of modern India has remained untouched by film-makers for nearly 30 years.

The film-maker announced the film with Rushdie today, at the eighth annual Mahindra Indo-American Arts Council Film Festival following last night's New York premiere of her latest film, Heaven On Earth.

The partners will start writing in March and expect to begin production at the end of 2010 on Rushdie's 1981 allegorical tale about the country of his birth. The story is told through the eyes of Saleem Sinai, one of many characters born at the stroke of midnight on August 15 1947 when India gained independence from the British Empire.

Shabana Azmi, who has starred in Mehta's previous films, will have a role in the film and attended the press conference. Rushdie hinted he may want to have a cameo role in the film as the fortune-teller who appears at the beginning of the book. Mehta's longtime collaborator David Hamilton will produce.

Midnight's Children was Rushdie's second novel and propelled him to fame after it won the Booker Prize - it was recently anointed Best of the Booker in celebration of the literary award's 40th anniversary.

Rushdie was the subject of a fatwa issue by Muslim clerics following the publication in 1988 of his controversial novel The Satanic Verses.

Midnight's Children's mix of historical events and imaginative flights of fancy - Sinai discovers he shares special powers with every other person born on the same day - has always made it a formidable proposition to film-makers.

Mehta, an Indian-born Canadian resident, is known for her bold style with works such as the visceral Elements Trilogy, including the Oscar-nominated Water.