The ruling Congress, the main opposition Telugu Desam Party (TDP), Telangana Rashtra Samithi (TRS), Bharatiya Janata Party (BJP) and the Left parties hoisted flags at their headquarters.
It was on this day in 1948 that then Hyderabad state was merged with the Indian Union following India's military action, popularly known as "Operation Polo".
The parties held similar functions in nine other districts of Telangana.
Police arrested some BJP workers at a few places when they tried to hoist the national flag at government offices.
BJP workers tried to barge into the office of the superintendent of police in Nalgonda to unfurl the flag but were arrested. A similar futile attempt was made in Warangal.
BJP state president G. Kishan Reddy, who hoisted the national flag after garlanding the statue of Sardar Patel near the assembly, said once Telangana becomes a separate state, the "liberation day" would be celebrated officially.
He said the Congress was not celebrating the day under pressure from the Majlis-e-Ittehadul Muslimeen (MIM).
The BJP has long been demanding official celebrations. Successive state governments have turned down the demand on the ground that this could create communal trouble in view of reservations from the Muslim community.
Muslim groups are opposed to any celebration as they claim that lives and properties of Muslims were targeted during "Operation Polo".
The MIM says some parties try to spread hatred by celebrating Sep 17. The party says there is only one Independence Day for the entire country and hence there is no need for separate celebrations in Telangana.
Telangana, which comprises Hyderabad and nine other districts, was part of the princely state of Hyderabad along with some districts of the present day Karnataka and Maharashtra.
At Gandhi Bhavan, the headquarters of the Congress, former minister D. Srinivas hoisted the national flag. Addressing party workers, he sought cooperation of all parties in carving out Telangana state.
TDP chief N. Chandrababu Naidu led the celebrations at the NTR Trust Bhavan. He paid tributes to those who fought for Hyderabad state's merger with the Indian Union.
At Telangana Bhavan, TRS leader N. Narasimha Reddy hoisted the tricolour and the party flag. He warned against further delay in the formation of Telangana.
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