Google, the US internet search company, has agreed to submit to official Chinese censorship.
The Chinese government, on its part, announced the renewal of Google's licence to operate in the country.
The government's decision came after the California-based company pledged not to provide "law-breaking content" to internet users in China, according to the official Xinhua news agency.
Xinhua reported on Sunday, quoting an official with China's internet regulator, that the licence was renewed for another year for Beijing Guxiang Information Technology Co Ltd, the operator of Google's China website.
The industry and information technology ministry's website listed Guxiang among some 200 companies whose licences had been renewed until 2012.
Xinhua said Guxiang agreed to "abide by Chinese law" and "ensure the company provides no law-breaking content" in its renewal application letter.
"After our assessment, we decided that Guxiang had basically met the requirements," Xinhua quoted the unidentified ministry official as saying.
Guxiang also agreed that all content it provides is subject to the supervision of government regulators, the official said.
For months now, Google has been redirecting mainland Chinese users to its Hong Kong website, in what it said was a protest against Chinese government censorship and internet espionage.
Search requests at Google.cn from within mainland China will now require an extra click that then takes the user to the Hong Kong site.
The company said on Friday that it received the approval after it agreed to stop automatically rerouting users of Google.cn to its site in Hong Kong, which is not subject to China's online censorship.
Renewing Google's licence also defuses a nagging dispute at a time when US and European companies have said China has become less business-friendly.
The Chinese government operates the world's most extensive system of internet monitoring and filtering, blocking pornographic sites as well as those seen as subversive to communist rule.
The small concession by Google comes as the company tries to uphold its anti-censorship principles while protecting its economic interests.
Google's revenue in China is estimated at around $300 million to $600 million, a fraction of its $24bn annual revenue.
It roughly holds 30 per cent share of China's billion-dollar internet search market, far smaller than its biggest rival in China, Baidu Inc.
Google wants to remain in China because its online advertising market is expected to grow as high as $15bn to $20bn annually in just a few years.
"I still think their long-term position in China is very fragile," Hamilton Faber of Atlantic Equities told Reuters news agency.
He said that Google faces an uphill battle to grow its search advertising revenue in the country.
Months of tension between Google and the Chinese government has also put Chinese advertisers on alert.
Ryan Jacob of the Jacob Internet Fund, which holds positions in both Google and Baidu, said advertisers "don't really want to be on the wrong side of the government.
"Now that Google has had problems with them in the past, it probably does make them less attractive and a little more risky to advertise with".