Reddy also resigned from the MLC post, to which he was elected just three months ago.
The Jaganmohan Reddy-led party has fielded Reddy's elder brother Mohan Reddy for the August 23 bypoll.
The Reddy brothers had joined the TDP ahead of the 2014 elections after deserting the Congress.
Mohan Reddy, a former minister, was expected to be fielded for the by-election from TDP, but the party chose Brahmananda Reddy, a member of the Bhuma family. The Silpa and the Bhuma families have a running feud in the faction-ridden Kurnool district.
Since his brother's exit from TDP, Chakrapani Reddy had been staying away from the party activities in Kurnool district, giving rise to speculation that he too was on his way out.
He then faxed a letter to TDP president N Chandrababu Naidu announcing his exit.
Chakrapani Reddy faxed another letter to the Legislative Council (acting) Chairman, stating that he was resigning as the MLC.
Mohan Reddy lost the 2014 Assembly elections as the TDP nominee to Bhuma Nagi Reddy of the YSRC.
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