The $74-million mission will attempt to enter orbit around Mars early on Wednesday. If successful, it will be the first time a mission has entered Mars' orbit on its first attempt, enhancing India's position in the global space race.
"Main liquid engine test firing successful ... we had a perfect burn for four seconds as programmed," the state-run Indian Space Research Organisation (Isro) said on its social media sites.
The engine was tested after being idle for 300 days and will be used with eight small thrusters during orbit entry. Reducing the craft's speed from its current rate of 22 km (13.7 miles) per second would be a key challenge, experts say.
The spacecraft, called Mangalyaan, was launched in November last year.
The project has been embraced by new Prime Minister Narendra Modi who aims to establish India as a bigger player in the more than $300 billion space technology market, even as neighbouring China gives stiff competition with its bigger launchers.
Modi will sit next to scientists at Isro's command centre in the city of Bangalore on Wednesday during the last phase of the mission, the space agency's scientific secretary V. Koteswara Rao told Reuters.
Rao said a group of about 100 scientists celebrated when the communication signals from craft, that take 12 minutes to reach Earth, showed the engine test was successful.
"It was a joyous moment," Rao said.
Success would make India the fourth space power after the United States, Europe and Russia to orbit or land on the red planet.
"This was a critical test we had to overcome. The mission appears to be near successful now," said Rajeswari Pillai Rajagopalan, an expert on space security at the Observer Research Foundation, a New Delhi-based think-tank.
The Mangalyaan aims to study Mars' surface and mineral composition, and scan its atmosphere for methane, a chemical strongly tied to life on Earth. It cost roughly a tenth of Nasa Mars mission Maven that successfully entered Mars orbit on Sunday.
Indians have started praying for the mission's success. On Sunday, Vishwa Hindu Parishad, an affiliate group of Modi's Bharatiya Janata Party, offered ritual prayers in the capital, New Delhi.
© Thomson Reuters 2014