However, there has been no official word so far from Rao, who was on Moday advised by Attorney General Mukul Rohatgi to convene a special session of the Legislative Assembly within a week for holding a composite floor test.
The Governor had kept his decision pending as the verdict in the disproportionate assets case against AIADMK general secretary V K Sasikala, a claimant for chief ministership, was due to be announced by the Supreme Court, which delivered it yesterday, restoring her conviction and sentence, which shattered her hopes of occupying the top seat.
Though Panneerselvam does not have the explicit support of a very large number of MLAs, he has been insisting he would prove majority on the floor of the House if asked to do so.
It remains to be seen whether the Governor goes by the AG's advice for a floor test by the two competing claimants for chief ministership or invites Palaniswami to form the government.
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Sasikala appointed Dinakaran, her nephew and former Rajya Sabha member, the deputy general secretary of AIADMK, a move seen by many as an attempt to hand over the party's control to him till her return from jail.
Dinakaran's appointment prompted V Karuppasamy Pandian, a senior AIADMK leader to resign as the party's organisation secretary.
"Dinakaran and Venkatesh are allowed to join the party
after they expressed regret for their acts in person and through letter and requested that they be allowed to join the party (again)," Sasikala said in a statement here.
Dinakaran and Venkatesh, besides Sasikala and her husband M Natarajan were expelled from AIADMK in 2011 by Jayalalithaa amidst reports they interfered with the functioning of the party and the government.
Dinakaran was part of the 12-member AIADMK team led by Palaniswami which met Governor Vidyasagar Rao and staked claim to form government yesterday.
She recalled that Jayalalithaa had once appointed him as the secretary of a key party forum meant to interact with the workers.
"He is not new to the party. He had moved closely with party workers. He is a calm and humble man," she told reporters.
Saroja said party MLAs will abide by the decision as Sasikala was the general secretary of the party.