The United States has removed Vietnam from a list of countries which it says severely violate religious freedom.
Religious freedom has "significantly improved", says the US
The list is published annually by the state department and includes China, North Korea, Iran and Sudan.
Vietnam was removed just days before President George W Bush travels to Hanoi for a meeting of the Asia Pacific Economic Co-operation (Apec) forum.
However, a US bill to normalise trade relations with Vietnam failed to get approval in Congress.
Another attempt to pass the bill is expected to be made later this week.
Announcing Vietnam's removal from its countries of concern list, the US state department said there had been "significant improvements toward advancing religious freedom" in the country.
The decision was welcomed by Vietnamese officials.
"It is a right decision which accurately reflects reality in Vietnam in accordance with the principles in the Vietnam-US relationship and positive progress," foreign ministry spokesman Le Dung said in a statement.
The decision comes amid a warming in US-Vietnam ties, and as Vietnam prepares to host the Apec forum, which it hopes will be a showcase for its economic reforms.
There is little doubt that religious freedom has increased in Vietnam in the two years it has been on the list, the BBC's Bill Hayton in Hanoi says.
But critics question whether it has increased enough, our correspondent adds.
There has been a revival of religious feeling in the country. New Buddhist pagodas are springing up and the Catholic Church has ordained new priests.
But there are limits. Only religious organisations that pledge loyalty to the state enjoy freedoms and dissidents, both Buddhist and Christian, face harassment.
The rights group Christian Solidarity Worldwide said this week it had evidence of a crackdown on Protestantism among ethnic minorities in the north-west highlands.
The UK-based group said it had acquired an internal government training manual outlining a plan to "to resolutely subdue the abnormally rapid and spontaneous development of the Protestant religion" in that region.
"If Vietnam wants to participate fully on the world stage, she must respect international law by protecting the full religious freedom of her citizens," Chief Executive, Mervyn Thomas said.
Correspondents say there has been a US effort to normalise diplomatic and trade relations with Vietnam.
But the House of Representatives' failure to pass the bill establishing permanent trade relations with Vietnam with a two-thirds majority on Monday surprised many.
The bill would allow US farmers, bankers and businesses to share in the benefits of Vietnam's fast-growing economy now it has joined the World Trade Organisation.
However, Republicans are hoping they can get it passed later this week, before President Bush travels to Hanoi.
While Vietnam has been taken off the US list of Countries of Particular Concern (CPC) regarding religious freedoms, Uzbekistan has been added.
The state department said observant Muslims are targeted as extremists.
The department said Burma, China, North Korea, Eritrea, Iran, Saudi Arabia and Sudan would remain on the list.