Macau has been returned to China after more than four centuries under Portuguese rule.

The handover was made at midnight (1600GMT) at a ceremony attended by the Chinese and Portuguese Presidents, Jiang Zemin and Jorge Sampaio.

The red and green Portuguese flag was lowered just before midnight and was replaced by a red communist Chinese banner, to the applause of an audience that included Chinese enterpreneurs in Western business suits, black-clad Catholic clergy and Buddhist monks in orange.

Although the ceremony was held indoors, jets of air were specially piped up the flagpoles so that the newly-raised flags fluttered in a breeze.

Speaking immediately after the handover, President Jiang hailed what he called a "brand-new era of development" and welcomed "Macau compatriots returning to the embrace of the motherland".

He said that Beijing's policy of ''one country, two systems,'' which had been applied to the reunification of Hong Kong and now Macau, would be a good example for the future of Taiwan.

The territory is now officially called the Macau Special Administrative Region, and it will enjoy a high degree of self-rule for the next 50 years.

In the minutes leading up to the handover, President Sampaio made a brief address to mark what he called "a unique moment in the history of Macau", and said that he believed that the rights and liberties of people living there would be guaranteed.

Local Chinese packed the streets to mark the handover, as Portuguese flags started coming down from official buildings.

Crowds waved red communist Chinese flags and the new green and white Macau flag.

The vast majority of Macau's 430,000 people are Chinese.

"We're happy that at last we don't have to be ruled by foreigners," said Wong Sio-cho, a taxi driver who turned out with his 3-year-old son, Ka Fung.

Although it will be under Chinese communist sovereignty, Macau will be allowed to keep its capitalist system. Beijing will maintain control of defence and foreign affairs.

Chinese troops of the People's Liberation Army are expected to arrive in Macau at noon on Monday.

The incoming political leader, Macau banker Edmund Ho, says they will be used to keep the peace.

End of empire

Macau had been ruled by Portugal for 442 years, with the Portuguese being the first Europeans to take over parts of Asia and now the last to leave.

Beijing turned down two previous Portuguese attempts to hand back the enclave; once in 1967 when China's Cultural Revolution stirred riots and again in 1974 after Portugal's revolution ended decades of dictatorship and new leaders sought to set free all remaining colonies.

Earlier on Sunday, the Portuguese flag was lowered at Government House, home to Portuguese rulers since 1846, as the governor, Vasco Rocha Vieira, left for the last time.

Household staff wept as he filed past to shake everyone's hand.

Mr Vieira and President Sampaio made the rounds of the city's array of colourful buildings and sights to bid farewell to the dwindling community of 11,000 Portuguese and Eurasian Macanese, who will remain behind in what is now part of China.

Protest

Earlier in the day about 35 members of the Falun Gong spiritual movement, which is banned in China but not in Macau or neighbouring Hong Kong, defied the authorities by performing meditation exercises and displaying slogans.

Wearing yellow windcheaters, with the words "truthfulness, benevolence, forbearance" printed on the back, they exercised early in the morning on a busy roundabout facing Macau's main casino the Hotel Lisboa.

The area was swiftly cordoned off by police, who ordered everyone to leave and pulled down banners.