He said while the legislative capital may continue to function from Amaravati, the coastal city of Visakhapatnam may be made the executive capital and Kurnool may be developed as the judicial capital.
He told State Legislative Assembly that the state needs to have innovative thinking to ensure decentralization.
"Decentralization is the real concept. We should also change. Countries like South Africa have three capitals. We may also have three capitals."
"Legislative capital may remain here. Assembly may function from here. We may have executive capital in Visakhapatnam. Administration may work from there. Kurnool may have judicial capital. High Court may be located there," he said.
Legislators of ruling YSR Congress Party (YSRCP) hailed the chief minister's announcement with the thumping of desks and slogans of 'Jai Jagan'.
Reddy said a final decision in this regard would be taken by expert's committee constituted by the state government. The panel is seeking opinion of people from all the regions.
The chief minister made the announcement at the end of the heated debate over Amaravati, which saw Speaker suspending nine members of the opposition Telugu Desam Party (TDP) for stalling the proceedings.
Ever since YSRCP came to power in May, the fate of Amaravati was hanging in balance as the new government had put all the works on hold, citing irregularities in development of the capital during TDP rule.
The government had formed a five-member committee, comprising urban planning experts, to look into the issue of state capital and make recommendations.
The panel had also sought people's opinion from all 13 districts of the state.
The foundation stone for Amaravati as the capital of Andhra Pradesh was laid by Prime Minister Narendra Modi in 2015.
A brainchild of then chief minister N. Chandrababu Naidu, Amaravati's design was prepared by Singapore government. He had planned to develop the city on the banks of Krishna river as a world-class city.
However, after coming to power, YSRCP decided to have re-look at the whole issue as it alleged that TDP leaders resorted to insider trading by buying lands in and around Amaravati at throwaway prices before deciding the location of the state capital.
In July, the World Bank and the Asian Infrastructure Investment Bank (AIIB) pulled out of the project to fund Amaravati's development.
Last month, a consortium of Singapore companies had closed Amaravati Capital City Startup Project, the agreement for which was signed during TDP rule.
The state government said they mutually decided to cancel the project as the consortium had failed to respond to the concerns raised.
( With inputs from IANS )