Former Chinese President Jiang Zemin has given up his last official position as head of the powerful Central Military Commission.
Hu Jintao succeeded Jiang Zemin as president in 2003
Current President Hu Jintao takes over in a move analysts say will consolidate his position as paramount leader.
The announcement, at the end of high- level Communist Party talks, completes China's first orderly leadership transition since the 1949 revolution.
Some subtle changes in policy may now be expected, observers say.
Influence may remain
The BBC's Louisa Lim in Beijing says Mr Jiang, 78, and Mr Hu, 61, had been locked in an apparent power struggle.
The leadership transition began in 2002, when Mr Jiang gave up the post of party chief to the younger man who then succeeded him as president in March 2003.
But as head of China's massive army, Mr Jiang still retained a huge influence in areas such as security and foreign policy.
In recent months, there has been speculation that Mr Jiang has been suffering health problems.
Our correspondent says that in the run-up to Sunday's announcement, Mr Jiang had been put under pressure behind the scenes to relinquish more power to the younger generation.
She adds that, while there is unlikely to be an abrupt change of direction as a result of Mr Jiang's departure, there are some differences between the two men which could result in subtle shifts in foreign and economic policy.
Mr Hu has espoused a more peaceful approach, while Mr Jiang is known to be more hawkish, particularly on Taiwan, which China regards as a breakaway province.
Mr Jiang's decision to go has been welcomed by the authorities in Taiwan.
"Jiang had a stronger grip on power, while Hu looks for more opinions before making decisions," said Chiu Tai-san, vice chairman of the Taiwan's Mainland Affairs Council.
"China's policies should be more stable and not so unpredictable," he told Reuters news agency.
Despite his resignation, Mr Jiang is still expected to wield considerable influence, because China's highest decision-making body remains stacked with his allies.
Mr Hu's appointment was confirmed on the final day of a high-level meeting of the Communist Party's influential Central Committee.
The four-day meeting, which took place behind closed doors, was also expected to approve a wide-ranging document to improve party governance and tackle corruption.
Mr Hu has made clear he wants to improve the party's accountability and transparency, as well as to tackle the mounting corruption that is undermining its credibility.