Increase in the proliferation of distributed energy resources require real-time situational awareness for efficient grid operations. State estimation plays an important role for the real-time control and management of the power grid. As the sensing infrastructure grows, aggregating and handling high volumes of data at a centralized location is extremely difficult. To address this challenge, this paper first proposes a novel and efficient hier-archical spectral clustering-based network partitioning algorithm followed by a decentralized compressive sensing (DCS)-based state estimation. The applicability of the proposed network partitioning algorithm is tested on an IEEE 123-bus network, an IEEE 8,500-node system, and a 6,000+ node distribution network. The results shows that the proposed approach efficiently divides the network into multiple sub-networks with the minimum number of edge connections among the neighbors. Then, we perform DCS-based state estimation on the 6,000+ node distribution network after dividing the network into 18 optimal partitions. Simulation results show that the DCS-based state estimation recovers the system states with high accuracy and low complexity.