After this evening's meeting of the Congress's senior most leaders including Sonia Gandhi and the PM, sources say that decision has been taken to create a new state.
The verdict, sources said, came from Sonia Gandhi and will now be shared with Congress leaders from Andhra Pradesh; a careful evaluation of how to minimise the political fall-out will be conducted.
The government's decision may be announced before Parliament meets for the monsoon session on August 5.
Chief Minister Kiran Kumar Reddy spent the day at the Congress's war-room, meeting with leaders like Digvijaya Singh and Sonia Gandhi's political advisor, Ahmed Patel.
The problem for the Congress is that there is a deep divide within parties - and indeed within its own leaders from Andhra Pradesh - on whether to split the state. The state consists of three regions- Telangana, coastal Andhra and Rayalaseema.
In anticipation of a decision to bifurcate the state, three state legislators from the Congress have resigned because they say they want Andhra Pradesh to "remain united." They have been followed by another 16 from the YSR Congress, which is headed by Jagan Mohan Reddy.
The five-decade struggle for a Telangana state gathered fresh impetus with an aggressive campaign by the Telangana Rashtra Samithi or TRS, headed by K Chandrasekhara Rao. In 2009, he fasted for 10 days, triggering huge rallies of support.
In response, in December 2009, in a surprise announcement, the Centre said it was sanctioning statehood. But within days, the government backtracked. Months of violent protests followed from the other two regions, forcing the government to suspend its decision.
At the heart of the tug-of-war is Hyderabad, and its robust IT-driven economy. Telangana wants to claim Hyderabad as its state capital. Leaders of the other two regions say they cannot afford to lose the employment and investment opportunities invested in the city. As a compromise, the Centre is reportedly in favour of making Hyderabad a shared capital between the new and old state for the next five or 10 years.
Andhra Pradesh has 42 Lok Sabha seats. The Centre reportedly wants to move two districts from Rayalaseema to Telangana. This will divide the seats equally between the new state and the old, and also check the growing popularity of Jagan Mohan Reddy and the YSR Congress. Mr Reddy's stronghold lies in Rayalaseema. By carving it up, the Congress hopes to divide his supporters.