The 52-year-old former cricketer, who had a long innings with the BJP in Punjab, has alleged that the party had asked him to stay away from Punjab to serve "personal interests".
Sources in the AAP said Sidhu will formally join the party next month, possibly in the second week of August.
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AAP is giving a tough fight to the ruling BJP-SAD alliance and Congress in Punjab, and is hoping to cash in on Sidhu's popularity to bolster its chances in the state election.
AAP national convener and Delhi Chief Minister Arvind Kejriwal has welcomed Sidhu's decision to quit Rajya Sabha as "brave" and has also called him a "nice" man.
Sidhu, however, has not disclosed his plans yet.
Earlier this week, he parried queries during a media interaction on whether he would join AAP, saying he will be standing wherever the interest of Punjab are served.
Sidhu has alleged he was told to remain away from Punjab to "serve personal interests," apparently suggesting that the BJP was acting under ally Shiromani Akali Dal's pressure.
Sidhu has had a running feud with the Akalis, who have accused him of "opportunists". They have said that "fugitive" leaders like Sidhu have no place in state politics and people will teach him a lesson.
But BJP has maintained that Sidhu has not quit the party yet.
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