An expelled Congress MP from Andhra Pradesh used pepper spray to disrupt proceedings in Lok Sabha soon after the Telangana Bill was tabled.
As soon the bill was introduced in the Lok Sabha by Home Minister Sushil Kumar Shinde, two sets of MPs - for and against Telangana - rushed to the Well of the House.
Two groups of protesters also clashed outside Parliament and a heavy contingent of police arrived to remove them as the volatile political atmosphere spilled onto the streets.
Earlier, Parliament was adjourned till noon following uproar over separate Telangana state and other issues.
Prime Minister Manmohan Singh on Wednesday expressed his dismay over the protests taking place inside Parliament over the Telangana issue, and said democracy in India was being harmed as a result.
"My heart bleeds to see what is happening in the House. This is bad for democracy," television channels quoted Dr. Singh, as saying shortly after Members of Parliament from the Congress and the Telugu Desam Party (TDP) nearly came to blows inside the Lok Sabha and had to be held back by other lawmakers.
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The Andhra Pradesh Assembly had earlier rejected the draft Bill to create a separate Telangana state.
On December 5, last year, the Cabinet cleared the Parliamentary bill for bifurcating the Andhra Pradesh to create a separate Telangana state, with 10 districts.
In July last year, the ruling Congress party approved the creation of a new Telangana state, which had raised fears of violence in the area. The proposal was received with mixed emotions across the state, with various politicians starkly opposing the bifurcation.