Over 100 buses were burnt, and shops and businesses attacked overnight.
Earlier the government had announced that it would allow the creation of Telangana irrespective of opposition.
K Chandrasekara Rao of the Telangana Rashtra Samiti (TRS), which is spearheading the protest for a Telangana state, has resigned from the lower house of parliament, along with two other MPs from the region.
Fifty lawmakers from the Telangana region and belonging to the Andhra Pradesh assembly have also handed in their resignations.
Mr Chidambaran explained the government's change in stance by saying that the situation in Andhra Pradesh had "altered" since he had made an announcement earlier this month on the formation of a Telangana state.
"However, after the statement, the situation in Andhra Pradesh has altered. A large number of political parties are divided on the issue," Mr Chidambaram added.
Politicians from Telangana reacted sharply to Mr Chidambaram's statement, saying that the government had put the demand in "cold storage".
The move to form Telangana state has plunged Andhra Pradesh into crisis - lawmakers have resigned, and there has been sporadic violence.
Telangana region is spread over 10 northern districts of Andhra Pradesh.
The last three new states in India were formed in 2000:
Chattisgarh was created out of eastern Madhya Pradesh;
Uttarakhand was created out of the hilly areas of northern Uttar Pradesh, and
Jharkhand was carved from Bihar's southern districts.
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