India and Bhutan have signed a revised friendship treaty giving the Himalayan kingdom greater control over certain areas of governance.
The king (left) is making his first official foreign trip
The updated 57-year-old agreement will allow Bhutan more freedom in areas of foreign policy and military purchases.
Bhutan's King Jigme Khesar Namgyel Wangchuk met Indian premier Manmohan Singh in Delhi to sign the treaty.
The king's father abdicated in December. Bhutan is due to become a parliamentary democracy next year.
Among issues raised in Delhi by the new king have been the rise in attacks carried out by Ulfa rebels who want independence for Assam.
Bhutan has asked India to provide additional security along the kingdom's southern borders with the state.
Thursday's meeting was part of a six-day visit by the Bhutanese monarch to India.
"The signing of the India-Bhutan Friendship Treaty marks a historic moment in our relations with Bhutan," Indian foreign ministry spokesman Navtej Sarna said.
"The updated treaty reiterates that there shall be perpetual peace and friendship between India and Bhutan. It removes provisions which have become obsolete... [and] includes fresh provisions for consolidating and expanding economic cooperation."
After taking over from his father, King Jigme Khesar Namgyel, who is 26, pledged to continue reforms and hold elections next year.
Correspondents say the new friendship pact could see Bhutan emerge out of Delhi's shadow.
Ahead of Thursday's signing, Bhutan's foreign ministry said it provided "the foundation for the continued growth of this excellent relationship in the 21st Century".
The kingdom only allowed television in 1999 and the internet the following year.