The process of forming a separate Telangana state will begin soon, the government announced late on Wednesday.
Home minister P. Chidambaram told reporters outside the Prime Minister's house that the Andhra Pradesh assembly would soon pass a resolution seeking to create a Telangana state.
All cases against those who have been protesting would also be withdrawn, he added.
Following the announcement, Telangana Rashtra Samithi ( TRS) leader K. Chandrashekar Rao ( KCR) ended his fast past midnight on Wednesday.
The decision to set the ball rolling on a separate state came after a meeting between Prime Minister Manmohan Singh, defence minister A. K. Antony, finance minister Pranab Mukherjee and Andhra Pradesh chief minister K. Rosaiah, besides Chidambaram.
Earlier in the day, a core group comprising Singh, Sonia Gandhi, Pranab, Chidambaram, Antony, and law minister Veerappa Moily discussed the issue.
After this meeting, Chidambaram spoke to KCR over the phone, informing him of the minutes of the meeting. Rosaiah also spoke to the TRS leader.
But KCR reacted to the developments with scepticism. KCR apparently made it clear to Chidambaram that he would call off his fast only if the assembly adopted a resolution.
Rosaiah was summoned to Delhi for consultations. After two rounds of the core group meeting, the Congress president and home minister had a separate meeting with Rosaiah, where he was told to move the Telangana resolution. Late at night, Rosaiah called on the PM. All MPs from the state also briefed Singh.
Earlier in the day, concern over the sinking health of KCR, a member of the Lok Sabha, led to an uproar in both Houses of Parliament.
In the Lok Sabha, Speaker Meira Kumar herself wished him speedy recovery.
Several members, including Opposition leader L. K. Advani, urban development minister and Telangana MP S. Jaipal Reddy, appealed to KCR to end his fast.
The Telangana issue, coming soon after the tragic death of Y. S. Rajasekhara Reddy and the subsequent leadership crisis in the state, has caught the Congress off guard.
While the party is under pressure from its Telangana leaders, others from coastal Andhra and Rayalseema are opposed to the bifurcation of the state.
The Congress brass is worried about the lack of a strong leader from Telangana. Jaipal Reddy and Renuka Chowdhury ( who lost the Lok Sabha polls this time around) are the only two prominent leaders from the region. But both lack mass appeal.
The untimely death of YSR has compounded the problem. YSR was strongly opposed to dividing the state.
The only saving grace for the party is that there is no election at least for four years and it could leverage gains in both Telangana and the remaining regions.
There is speculation in the party that the TRS may be asked to merge itself with the Congress with the chief minister's post being given to the Telangana party. The TRS has only two MPs - KCR and Vijayashanti, who has been planning to cross over to the Congress.
A Union minister said if the party concedes Telangana, it would have to take a view on the demands for other states - from Vidarbha, Harit Pradesh, Bundelkhand, Gorkhaland, etc.