Palestinian leader Yasser Arafat has been asked to nominate senior figures to attend the talks, aimed at reforming the Palestinian Authority.
Chief Palestinian negotiator Saeb Erekat told Reuters news agency that Mr Arafat had "appreciated [Mr Blair's] letter and accepted the invitation" to invite the ministers.
But Palestinian Government minister Nabil Shaath warned that, while Palestinians would be happy to attend the talks, they do not want the agenda to solely deal with the issue of reform.
"We care about Britain playing a positive role...but we will want to discuss the agenda," he told the BBC.
"We want to see how far this will put us forward in trying to regain the peace process and to end the suffering of our people."
However he added that he was sure discussion would be "fruitful" and ultimately worthwhile for the Palestinians.
'Quartet' meeting
The talks will run parallel to efforts by the United States, the European Union, the United Nations and Russia to draw up a "road map" for peace in the region and lay the groundwork for a Palestinian state.
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It is in the interests of both the Palestinians and Israelis that these reform efforts succeed, so that we can make a reality of President Bush's vision of two states - Israel and Palestine - living side by side in peace and security
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British Prime Minister Tony Blair
Representatives from this so-called quartet of mediators, together with other countries from the region, will be invited to attend the London conference, Mr Blair told the British Parliament.
The conference will be attended by the Mr Blair and chaired by the Foreign Secretary Jack Straw, and Egypt, Saudi Arabia and Jordan have also been asked to send representatives.
Israel is not expected to attend the talks, and has asked the US to delay adoption of the so-called road map until after its general elections in late January.
Blair's message
Mr Blair announced the planned talks shortly after meeting Syrian President Bashar al-Assad in London on Monday.
"It is in the interests of both the Palestinians and Israelis that these reform efforts succeed, so that we can make a reality of President Bush's vision of two states - Israel and Palestine - living side by side in peace and security," he said.
BBC diplomatic correspondent Barnaby Mason says that Mr Blair's announcement, coupled with President al-Assad's visit, is a message to the Arab world that Britain cares as much about the Palestinians as it does about disarming Iraq.