Under mainland law, farmland is collectively owned, but allocated to farmers in small plots under long-term leasing contracts, typically 30 years. The decision endorsed by the party's Central Committee would establish markets for the lease of contracted farmland and the transfer of land-use rights, allowing farmers to sub-contract, lease or exchange their rights, Xinhua said.

One such market has already been set up in the southwest city of Chengdu .

Transfers must be voluntary, in return for adequate payment and legally carried out, the document said. It said the land must be used for its original purpose.

There has been speculation that the period for holding land would be extended beyond 30 years.

State media hailed the reform, saying it was a 'major breakthrough' that would encourage large-scale agriculture and allow farmers to enter new areas of business.

The first hint that Communist Party leaders would endorse the policy change came early this month when President Hu Jintao visited symbolic Xiaogang village in Anhui province , where he told farmers that China would promote modernised farming and allow transfer of farmland.

Thirty years ago a secret land-division agreement signed by 18 Xiaogang farmers triggered rural reform.

Critics have argued that the policy could give rise to powerful landlords and landless farmers. Some have also raised worries that arable land could be put to uses other than farming, threatening China's grain security.

In an apparent response to these fears, the party urged the protection of land and limits on development. The document said China would seek to maintain grain security.

Repeating an earlier pledge, the document vowed to double the annual per capita disposable income of rural residents from the current level to around US$1,200 by 2020. And according to the document, the government would also relax control over the migration to cities.

We 'will push forward the reform of the residency system making it easier to settle in medium and small cities so that rural residents who have steady jobs in cities can become urban residents in an orderly manner', it said.

Andy Xie, an independent economist, said the key to rural reform was the ownership of land transfers. 'They are putting together a system which allows farmers to sell their land. This is very controversial.'

The government worries it would have to support farmers who exhaust their money after transferring their land.

'The foundation of the revolution was landless peasants,' he said. 'The Communist Party, Mao, realised this is the force in society. Historically in China, it's always been like that.'

At the same time, however, China needed to modernise agriculture to create large-scale, mechanised farms and shift more rural residents into the cities. 'China has too many farmers,' Mr Xie said. 'That has led to so many problems.'