Concept:
During sludge thickening, the amount of dry solids remains constant while the moisture content decreases.
Hence,
\[
\boxed{
V_1S_1=V_2S_2
}
\]
where
\[
V=\text{Volume of sludge},
\]
\[
S=\text{Percentage of solids}.
\]
Step 1: Calculate the solids content.
Initially,
\[
\text{Moisture}=99\%
\]
Therefore,
\[
S_1=100-99=1\%
\]
After thickening,
\[
\text{Moisture}=96\%
\]
Hence,
\[
S_2=100-96=4\%
\]
Step 2: Calculate the final volume.
Using
\[
V_1S_1=V_2S_2,
\]
\[
V_2
=
V_1\left(\frac{1}{4}\right)
=
0.25V_1
\]
Thus,
\[
\text{Reduction in volume}
=
\left(1-0.25\right)\times100
=
75\%.
\]
Hence,
\[
\boxed{\text{Reduction in sludge volume}=75\%.}
\]
Therefore, the correct option is
\[
\boxed{(C)\;75\%.}
\]