Hong Kong's chief executive has said Beijing plans to allow the special region to directly elect its leader by 2017 and legislators by 2020.
Donald Tsang said Hong Kong had entered an "important new phase"
Donald Tsang said the announcement was a "most important step" for the future of the former British colony, which became part of China in 1997.
The move comes after Mr Tsang submitted a report requesting elections by 2012.
Hong Kong's leader is chosen currently by an 800-member committee. Half the 60-seat Legislative Council is elected.
The region is governed under the principle of "one country, two systems", under which China has agreed to give it a high degree of autonomy and to preserve its economic and social systems for 50 years from the date of the handover.
Its constitution provides for the development of universal suffrage as the "ultimate aim", but is vague about the date.
The Standing Committee of the National People's Congress (NPC), China's parliament, issued a ruling on Saturday saying it would consider allowing direct elections for the election of Hong Kong's leader in 2017.
"The session is of the view that... the election of the fifth chief executive of the Hong Kong Special Administrative Region in 2017 may be implemented by the method of universal suffrage," it said, according to the Xinhua news agency.
The standing committee added that if the chief executive was elected directly, it would then consider introducing universal suffrage for the Legislative Council election in 2020.
However, it ruled out full democracy at the chief executive election in 2012, saying only "appropriate revisions" might be made to the selection method.
Hong Kong became a special administrative region of China in 1997
Mr Tsang, the current chief executive, said in a report submitted to the NPC before the decision that a majority of Hong Kong wanted direct elections by 2012, although he said a delay until 2017 stood a "better chance of being accepted".
At a televised press conference held after the NPC's decision was announced, Mr Tsang said Hong Kong had "entered an important new phase" with a target date for universal suffrage having been defined.
"We are grateful and we welcome Beijing's decision. It sets a clear timetable for electing the chief executive and legislators," he said.
"We must treasure this hard-earned opportunity."
However, Ronny Tong, one of Hong Kong's leading pre-democracy campaigners, told Hong Kong Cable TV that he was "deeply disappointed".