Hillary Rodham Clinton, the US secretary of state, has announced that Washington will exchange ambassadors with Myanmar in response to its freeing of political prisoners and other reforms.
Clinton announced the move on Friday after state media announced that Thein Sein, Myanmar's president, had issued a pardon and freed 651 detainees, included some of the country's most famous political inmates.
In a statement, US President Barack Obama described the pardons as "a substantial step forward for democratic reform".
The decision follows a landmark visit by Clinton to Myanmar in December, seen by the US as a way of deepening engagement and encouraging more openness there.
Speaking to Al Jazeera from Washington, Win Min, a Myanmar activist and former student protest leader, described the exchange of envoys as "very significant".
"It is important because the US and other Western governments may now roll back some of their sanctions [on Myanmar]," said Min, who added that restored ties would also balance China's growing influence in the country.
As the Obama administration looks to step up US involvement across the Asia-Pacific region, it has shifted from Washington's long-standing policy of isolating Myanmar's military government because of its poor human rights record.
"As I said last December, the United States will meet action with action. Based on the steps taken so far, we will now begin," Clinton said.
The highest level US diplomat based in Myanmar has been a charge d'affaires.
Washington downgraded its representation in 1990, when opposition leader Aung San Suu Kyi's party swept elections but was barred from power by the military.
Also on Friday, Nicolas Sarkozy's office said the French president had decided to give France's highest award, the Legion of Honor, to Suu Kyi.
Sarkozy hailed Suu Kyi's "political courage" and expressed support for the Myanmar's recent reforms.
Alain Juppe, French foreign minister, will be charged with giving Suu Kyi the award during his trip to Myanmar on Sunday and Monday.
Clinton said the US would identify further steps it could take to support reforms, but gave no specifics.
Among the other recent moves by the government that she commended was its reaching a ceasefire with the Karen National Union, stopping a long-running ethnic conflict.
The US currently maintains tough political and economic sanctions against Myanmar, which heavily restrict trade, investment and foreign aid.
The Myanmar government is still dominated by the army, but it has freed Suu Kyi and begun a dialogue with her while easing restrictions on media and trade unions.
Clinton said having an ambassador would help the US to deepen its ties with Myanmar's people and government and support "the historic and promising steps that are unfolding".
She cautioned that posting the ambassador would be a lengthy process and would depend on continued progress toward reform.
Myanmar's own diplomatic representation in Washington also currently is a step below the level of ambassador.
Clinton urged Myanmar to release its remaining political prisoners and make their release unconditional, address concerns of ethnic minority groups and hold free and fair by-elections that Suu Kyi's party will contest on April 1.
She said she would call Suu Kyi and Thein Sein this weekend "to underscore our commitment to walk together with them on the path of reform".