The Vatican and Malaysia have agreed to establish diplomatic ties, following a meeting between Pope Benedict XVI and Malaysian Prime Minister Najib Razak.
The move comes after years of talks between the Catholic Church and the government of majority-Muslim Malaysia.
Mr Najib's visit was said to have been intended to reassure Christians in his country, who have long complained of discrimination.
Ethnic and religious tensions have risen ahead of expected national polls.
On Monday Mr Najib met the Pope at his summer home near Rome.
In a statement, the Vatican said that during their "cordial conversations, the positive developments in bilateral relations were discussed and an agreement was reached to establish diplomatic relations between Malaysia and the Holy See".
The Vatican said the two leaders had also discussed the importance of cultural and religious dialogue for the promotion of peace, Associated Press news agency reports.
Mr Najib's meeting with the Pope is significant for Malaysia's Christian community, which makes up about 9% of the population.
Malaysia's constitution promises freedom of worship to all faiths, but a string of religious disputes in recent years has raised fears among the country's religious minorities that their rights are being eroded, says the BBC's Kuala Lumpur correspondent Jennifer Pak.
In 2009 the authorities tried to enforce a ban on Christians using the word "Allah" when referring to God in the Malay language - Christian leaders said the word had been used in their bibles for decades.
The authorities' efforts heightened tensions, leading to arson attacks on churches and tit-for-tat defacing of mosques, including the leaving of pigs' heads at doorways to Islamic prayer halls.
Ramon Navaratnam, who works for a Malaysian inter-faith council, said earlier that forming ties with the Vatican would give the concerns of Christians a better hearing.
"We now will be saying things the way we have, what is right, what is wrong, what we like, what we don't like about religious freedoms or the lack of it, and we know we will have somebody in the Vatican who would be able to at least talk to them, the government, privately and say 'look, we can't accept this. Please moderate your views'," he said.
Mr Navaratnam said the government could no longer ignore religious minorities, most of whom are ethnically Chinese and Indian.
However, some Malay Muslim groups have become more vocal in demanding privileges and support from the government.
In 2008, Chinese and Indian minorities across Malaysia, who are mainly Christians, Hindus and Buddhists, abandoned the government and voted for the opposition.
Many complained of racism and a lack of religious freedom.