A "targeted cull" of badgers has been announced as part of a plan in Wales to eradicate tuberculosis in cattle.
The location of the area and details of the cull have yet to be decided.
The Welsh Assembly Government's plan includes a one-off test of all cattle and a review of the compensation system, rural affairs minister Elin Jones announced.
Wales' chief veterinary officer said bovine TB was out of control and the current policy was not working.
In a briefing on Tuesday, Christianne Glossop said incidents had increased dramatically over the last decade.
Compensation payments to farmers have risen from £1.3m in 1999-2000 to £15.2m in 2007-2008.
Farmers have long blamed badgers for spreading bovine TB but animal groups say evidence does not support this.
Announcing her decision to AMs in Cardiff Bay, Ms Jones said: "This is a difficult decision to take and it has not been taken lightly.
"I am very aware of the strong views on this issue."
Ms Jones said she had given "due consideration to the divergence of scientific and political opinion" on the matter.
"I want to make it absolutely clear that the badger remains a protected species in Wales and the conditions of the Badger Act are firmly in force. Illegal action will not be tolerated," she said.
The test zone would need to be in an area with hard natural or manmade boundaries, she added.
Ms Jones also said there would be a one-off test of all cattle herds in Wales to assess the extent of infection.
It means testing about an extra 4,657 animals or 35% of herds in Wales.
She said she wanted to reform the compensation regime for farmers whose infected cows were slaughtered to "encourage herd owners to comply with legal and best practice requirements".
Last year 7,905 cattle were slaughtered in Wales, up from 669 in 1997.
Ms Jones said it would cost more than £30m by 2012 if it grew at the present "unsustainable" rate.
There has been limited badger culling before but it will be the first time in Britain that such a wide-scale measure - within a defined area - has been used to control the disease.
Under the current policy cattle are slaughtered if they fail routine tests, with farmers who lose cows compensated.
Many farmers say badgers are to blame for infecting their herds and want a widespread cull.
Unions, NFU Cymru and the Farmers' Union of Wales have welcomed the plans unveiled by Ms Jones to take a proactive approach to controlling bovine TB in Wales.
But conservationists have urged the Welsh Assembly Government to reject the proposal, saying badgers are being wrongly victimised for an illness brought on by modern, intensive farming.
Trevor Lawson for Badger Trust Cymru said the assembly government had "cherry-picked the scientific evidence which suits the powerful farming lobby in Wales".
"It is hard to imagine a more naive and short-sighted political decision than killing badgers," he added.
"It is a tragic day for Welsh wildlife that will have negative repercussions in the rural economy for years to come."
There was badger gassing from 1975, after a bovine TB outbreak in Dorset, until 1982, when badgers became a protected species.
There was some trapping and shooting in the 1980s, until trials were held over the last 10 years to look at the evidence for the likely effect of culling.
The coalition deal between Labour and Plaid Cymru in the Welsh Assembly Government has led to a commitment to attempt to eradicate TB in cattle, with £27m being allocated over the next three years for this purpose.
Conservative rural affairs spokesman Brynle Williams AM said the announcement would be welcomed by farmers.
"Clearly there will be opposition from wildlife groups to these proposals," he said.
"However, this decision comes after a lengthy, comprehensive inquiry by the assembly rural affairs committee."