NEW DELHI—Ranbaxy Laboratories Ltd. won approval Thursday to produce a generic version of Novartis AG's blockbuster, blood-pressure drug Diovan, improving the Indian company's prospects after years of regulatory problems.

The Gurgaon-based company was supposed to begin Diovan production in late 2012, but the Indian plant that was to produce the drug was barred from exporting to the U.S. by the Food and Drug Administration.

Now,...