The announcement was made in a joint statement with government officials on Wednesday as President Alvaro Uribe temporarily transferred his government to the war-torn eastern province of Arauca.
The United Self Defence Forces of Colombia (AUC) would begin demobilising its 10,000 fighters by the end of this year in a process expected to last until December 2005, the statement said.
The statement, titled the "Agreement of Santa Fe de Ralito", said the Colombian government "agrees to help incorporate (AUC members) into the civilian life".
"They (the fighters) are undesirable for the country, and the moment for their demobilisation has come," the government's chief peace negotiator Luis Carlos Restrepo said.
The AUC is the largest paramilitary umbrella organisation in Colombia.
The peace talks open the possibility of removing a major player from the nation's three-way conflict between the army, far-right militias and Marxist rebels.
The AUC are the sworn enemies of two other of Colombia's irregular forces, the 17,000-strong leftist Revolutionary Armed Forces of Colombia, or FARC, and the smaller National Liberation Army.
Human rights groups have blamed all three groups for violations, but especially singles out the AUC for committing some of the worst atrocities and massacres in the country's 40-year-old civil war.
Uribe, meanwhile, is hoping his three-day visit to Arauca will show he is in control - despite the government's US-backed war with rebels.
The president arrived in the eastern province on Tuesday - a region he himself declared a war zone shortly after taking office last year.
It was the first time in recent memory a Colombian president moved his government to a conflict area.
The oil rich province, which borders Venezuela, is perhaps the most violent region of the country. The paramilitaries and members of both of Colombia's rebel groups are active there.
"This is a symbolic act to take the presence of the government to all corners of the country," a presidential adviser said.
Uribe was elected last year on hopes he would crack down on Marxist rebels.
"This is a historic visit because for more than 20 years the government has been absent, and that space was taken up by the armed illegal groups," Arauca Mayor Jorge Cedeno said.