In 1866, Bismarck instigated the Austro-Prussian War and the decisive victory allowed him to annex several Northern German states and dissolve the Austrian led German confederation in favor of one dominated by Prussia. Why did he allow Austria and four southern German states to be independent

To prevent immediate retaliation or ambition for revenge from the Austrian dominated states.

Explanation:

In 1866, the Austrian-Prussian war otherwise known as the Seven Weeks War was led by Bismarck.

His main reason or motive for the war is to centralize Germany thereby extending and strengthening the Hohenzollerns, the ruling dynasty of Prussia.

However, instead of pressing further to win more territorial victory or gain. He allowed Austria and four other southern states to be independent. His main purpose is to prevent immediate retaliation or desire for fighting back from Austria and its allies.