The Government has conceded to the demand of the Telangana Rashtra Samithi (TRS).
Late on Wednesday, Home Minister P Chidambaram announced that the "process of forming the state of Telangana will be initiated."
"An appropriate resolution will be moved in the Andhra Pradesh Assembly," Chidambaram said. (Watch: Chidambaram's statement on Telangana)
"The Centre has requested the Andhra Pradesh Chief Minister to withdraw cases against leaders, students and those associated with the separate Telangana agitation," he added.
Reacting to the announcement, TRS chief K Chandrashekhar Rao ended his 11-day fast. (Watch: KCR smiles, ends 11-day fast over Telangana)
Andhra Pradesh will be split into two states. A resolution on Telangana will be moved in the Assembly. (Read: What is Telangana?)
The decision was announced a little before midnight by Home Minister P Chidambaram, right after Prime Minister Manmohan Singh and Sonia Gandhi met Andhra Chief Minister K Rosaiah.
They met the CM after two rounds of late night talks with Andhra incharge A K Antony, Law Minister Veerappa Moily, political advisor to Sonia Gandhi Ahmed Patel and Home Minister P Chidambaram.
As the announcement was made in New Delhi, there were celebrations in the Telangana region of Andhra Pradesh with the students of Osmania University calling off their agitation. (Read: Telangana supporters hail Centre's decision)
The Victory March called by Telangana supporters has been cancelled.