The movement for a separate Telangana state dates back to over 50 years and Rao's Telangana Rashtra Samiti (TRS) party has been spearheading the cause since 2001.
The TRS along with other supporters of the Telangana state feel past assurances have not been kept and the region remains neglected compared to other parts of Andhra Pradesh.
Violent protests gripped the region after Rao went on hunger strike on November 29. More than 20 people committed suicide in support of a separate state, local media reported.
Rao broke his fast after the government's decision, which paves the way for India's 29th state. It is expected to consist of 10 out of Andra Pradesh's 23 districts.
But as supporters of the new state celebrated after the announcement, dissenting legislators in Andhra Pradesh revolted against the government's nod to split it into two states.
Andhra Pradesh was plunged into a political crisis as dozens of local legislators from the Congress and regional parties tendered their resignations.
The TRS' demand to include technology hub Hyderabad in the new state was also likely to be met with stiff resistance from politicians and businesses.
"Hyderabad has never been in dispute. We will not accept Telangana without Hyderabad," KT Rama Rao, a TRS leader and son of Chandrasekar Rao, said.
Political analysts said the creation of the new state may revitalise separatist movements in other states and encourage them to use violent protest for their demands.
Later on Thursday, leaders from the Gorkha community - ethnic Nepalis - met in the eastern state of West Bengal and said they would launch a fast-unto-death demanding their "homeland."
More than 20 activists from the Gorkha Janmukti Morcha (Gorkha Peoples' Liberation Front) are to begin a hunger strike on Friday to demand that Gorkhaland be carved out of West Bengal, they said.