The leaders of the two parties reached the agreement in the evening. However, a formal announcement is likely to be made Wednesday.
TRS leaders claimed that the TDP has agreed to leave 48 assembly and nine Lok Sabha seats for the party, which is spearheading the movement for separate statehood to the Telangana region.
On a day of dramatic developments, the TRS had set a deadline for the TDP to accept its demands and had even threatened to walk out of the alliance, which also has the two communist parties as the other constituents.
TRS leader Vijayrama Rao said the two parties ironed out their differences. He told reporters that the TRS would declare its first list of candidates Wednesday.
Telangana region, comprising 10 districts including Hyderabad, sends 17 members to the Lok Sabha and 107 legislators to 294-member state assembly. There are 42 Lok Sabha constituencies in the state.
The TRS will field candidates from nine Lok Sabha constituencies – Karimnagar, Peddapalli, Warangal, Nizamabad, Medak, Zaheerabad, Malkajgiri, Nagarkurnool, Adilabad or Secunderabad.
The TRS, which had an alliance with Congress party in 2004 elections, had bagged 26 assembly and five Lok Sabha seats. It had contested 42 assembly and nine Lok Sabha seats.
Earlier, TRS president K. Chandrasekhara Rao had set 2.30 p.m. deadline for the TDP to agree to his demand.
The state is going to polls in two phases – April 16 and 23.