The conflict between the English and the Pindaris paved the way for the Third Anglo-Maratha War (1817-1818) as the English suspected that the Marathas were providing clandestine help to the Pindaris.
The Peshwa with a view to increasing the income of the state introduced certain stringent measures in his revenue affairs. The English accused him of maladministration and oppression. On the other hand, Sindhia and Holkar were involved in a tussle in the border regions in order to satisfy their increasing demand for revenue.
Relentless intervention of the British Residents in the internal affairs, particularly in the dispute regarding succession of the Indian states almost shattered their administrative structure. Moreover, bitter factional feuds sprang up among the subdued chiefs. But in no time, the real intentions of the English were exposed to the Maratha sardars and in 1817 they decided to give their last fight for freedom against the English. The English had posted huge troops very near to the Maratha kingdom for suppressing the so called Pindari adventurers.
Although the Peshwa Baji Rao II accepted the Subsidiary Alliance of the English, but he became eager to make himself free from the English control. With the help of his trusted minister Trimbak Rao, Baji Rao II tried to form an anti English confederacy. But Elphinstone, the British Resident of Puna had a strong disliking for Trimbak Rao and he used to keep a close watch over the latter’s activities. The Gaikawad of Baroda had close links with the English. In 1815 Gaikawad sent his Prime Minister Gangadhar Shastri to the Peshwa headquarters at Puna for negotiating on certain important issues. But Trimbak Ralo hatched a plot against Gangadhar Shastri and eventually murdered him. The murder of Gangadhar made Elphinstone angry and he told Peshwa to submit Trimbak Rao to the hands of the English. After much hesitation, Baji Rao II surrendered Trimbalk Rao to Elphinstone. The English kept Trimbak under confinement in the fortress of Thana. This incident gave a serious blow to the dignity of the Peshwa and he was out to take revenge against the English. In the beginning of 1817, the Peshwa made serious attempts to organize against the English a confederacy of the Maratha Chiefs. For this purpose, Baji Rao II sent one of his ministers, Balaji Kunjar to several Maratha sardars. He also opened negotiations with the Pathan Chief Amir Khan and the Pindaris. He repaired the old forts of his kingdom and tried to increase the strength and efficiency of his army. Elphinstone realised that the Marathas were preparing for a final showdown with the English.
By this time, Earl of Moira, better known as the Marques of Hastings came as the Governor General (1813). With his arrival the British policy of neutrality had thoroughly been reversed. The English compelled the Maratha leaders to make pacts with them. After the death of Raghuji Bhonsle a dispute regarding succession arose. Ignoring the claim of his on Parsaji Bhonsle his nephew Appa Sahib became the successor to Raghuji’s kingdom. By the terms of .the Nagpur Treaty signed on May 27, 1816, Appa Sahib accepted the Subsidiary Alliance of the English. On June 13, 1817, the Peshwa was also compelled to sign a treaty with the English at Puna. The Peshwa pledged not to take any initiative to form an anti English confederacy. He also ceded Konkan along with some other territories to the English. By the terms of the Gwalior Treaty signed on 5 November, 1817, Daulat Rao Sindhia promised to cooperate with the English.
But not a single Maratha chief did accept these humiliating treaties imposed upon them by the English. They desired to make a last effort to free themselves from the British control.
On 5 November, 1817, the Third Anglo-Maratha War or conflict began. Bapu Gokhale suffered defeat at the hands of the English in two successive battles. Peshwa Baji Rao II fled to Purandar. At this stage, Appa Sahib Bhonsle and Malhar Rao Holkar, the son of Jaswant Rao Holkar, declared war against the English. On 27 December, 1817, the English defeated Bhonsle in the battle of Sitabaldi and defeated Holkar on 21 December in the same year. On January 6, 1818, Holkar was compelled to accept Subsidiary Alliance by the terms of the Treaty of Mandasore.
Holkar also left his claim over the Rajput territories and gave the entire region situated in the south of the river Narmada to the English. The English also annexed the kingdom of Appa Sahib Bhonsle. The Peshwa fought two more battles with the English – at Koregaon on January 1, 1818, and at Peshti on February 20, 1818. He suffered defeat in both the battles and his able general Bapu Gokhale died in the second. On 3 June, 1818, Peshwa Baji Rao II surrendered to the English. Baji Rao II had to stay on a pension of 8 lakhs a year. His dominions were placed under the English contrail. Satara was given to Pratap, a descendant of Sivaji. With the suppression of the Marathas there was no power left to resist the growth of the British power in India. British influence and authority spread throughout the country with magical celebrity.