Bolivia's president said he would revoke a mining concession from Canada's South American Silver Corporation and give the state control of the site due to violent protests over the company's plans.
The announcement on Wednesday is the second time in less than a month that President Evo Morales has given in to protesters' demands for him to step up a drive to increase state control over natural resources in the poor Andean country.
Violence flared last week at South American Silver's Malku Khota project after protesters held five Bolivian employees hostage to demand the Canadian company leave.
They hailed the president's decision as a definitive solution to the conflict in which one protester was killed and a dozen more injured.
"The company [South American Silver] put brothers, brothers-in-law, cousins and neighbours at odds with one another," Morales said at the presidential palace as he explained the deal between protesters and his government.
"How can we be at odds with each other over an international company that comes to loot our natural resources?" said Morales, an ally of Venezuela's Hugo Chavez, who has increased state control over the economy with a series of nationalisations.
Under a deal signed with the protesters, the government will set up a joint commission to draw up a decree to revert all the concessions granted to South American Silver Corp's local subsidiary.
Some peasant farmers in favour of the project also backed the accord.
The Canadian company describes the exploration project as "one of the world's largest undeveloped silver, indium and gallium deposits". A company spokesman declined to comment.
The workers who were held hostage were freed at the weekend after the government promised to study a possible nationalisation of the project.
Morales said Malku Khota's resources belonged to the Bolivian people and that further exploration or production would be carried out by the state with the involvement of the local community.
Last month, clashes between rival miners broke out at a tin and zinc mine owned by global commodities giant Glencore after several weeks of protests.
Morales responded by having the state take control of the mine's operations, cooling tempers domestically but upsetting Glencore due to a lack of compensation.