The major decision was taken at the state Cabinet meeting presided over by Chief Minister K. Chandrashekhar Rao.
He told reporters after the meeting that private operators will be allowed to run buses on 5,100 routes.
KCR, as Rao is popularly known, said he was giving a chance to the striking employees to save their jobs and the future of their families.
"If they don't return to work by November 5 midnight, we will privatise remaining 5,000 routes," he said.
Rao said the decision to privatise the routes was irrevocable as the state was empowered to do so under the Motor Vehicle Act, 2019.
The Chief Minister once again ruled out the merger of TSRTC with the government. He said the Cabinet passed a resolution that TSRTC can't be merged with the government.
The decision came even as the indefinite strike by over 48,000 employees entered its 29th day on Saturday.
KCR reiterated that the strike was illegal and asked the employees not to fall into the trap of union leaders and spoil their future.
The Chief Minister on October 7 had announced that 1,200 employees remained with TSRTC as the others did not join the duty before the expiry of the October 5 deadline.
Stating that he had no intention of making the employees jobless, KCR pointed out that he raised their salaries by 67 per cent during last four years.
He said the decision to partially privatise TSRTC was taken to ensure efficient public transport and provide better service to the people.
He clarified that the private operators will work under the control of TSRTC and there will be a regulatory commission to fix fare and take care of other issues.
KCR said the in future, the employees will not be able to blackmail the government by going on strike during festival and exam time.
KCR said Telangana was doing what states like Madhya Pradesh and West Bengal had already done.
"Privatisation will bring healthy competition and improve the service," KCR said, as he denied that profit-making routes will be given to the private operators.
Slamming the BJP for supporting the striking employees, he reminded the state leaders of the party that their government in Madhya Pradesh privatised RTC, while their government at the Centre enacted a legislation empowering the states to privatise RTCs.
( With inputs from IANS )