A delegation of ministers from the capital Naypyidaw and senior members of the Karen National Union (KNU) signed the pact in Hpa-an, the capital of eastern Karen state, scene of one of the world's longest-running civil wars.
"The president has said we brothers have been angry at each other for 63 years and he asked us to give the KNU what they want. That's why we came here," said Immigration Minister Khin Yi before the pact was signed in front of reporters.
The military-dominated government, which came to power in March last year after decades of outright army rule, has been trying to reach out to ethnic groups as part of reforms seemingly aimed at ending its isolated status.
Civil war has gripped parts of the country since its independence in 1948, and an end to the conflicts, as well as alleged human rights abuses involving government troops, is a key demand of the international community.
A leading KNU member known as Brigadier General Johnny expressed optimism ahead of the talks with the government.
"This time they didn't ask us to give up our arms, they just want to work for equal rights for ethnic groups," he told AFP. "This time we trust them."
But he added: "We have been fighting for 60 years and one meeting alone will not end it."
Vast numbers of villagers in Karen state, scene of Myanmar's oldest insurgency, have been forced to flee and tens of thousands of these refugees live in camps across the border in Thailand.
Rights groups say the government's counter-insurgency campaigns over the years have deliberately targeted civilians, driving them from their homes, destroying villages and forcing them to work for the army.
In December, a ceasefire deal was reached between the local government and the Shan State Army-South, another major ethnic guerrilla group, based in northeastern Shan state.
The pact followed talks near the Thai-Myanmar border with some of the several ethnic groups in a long-running struggle for greater autonomy and rights, including the KNU.
Myanmar's previous ruling generals justified decades of iron-fisted rule as a way of maintaining stability and unity in a country where one third of the population is made up of ethnic minorities.
Although the peace deal with the KNU marks a major breakthrough, tensions remain with other factions.
Fighting in northern Kachin state between the army and rebels since June last year has displaced tens of thousands of people.
The conflict has continued despite President Thein Sein ordering the army to halt operations, according to global campaign group Refugees International.
Since the new government was installed, other promising steps have included talks with democracy icon Aung San Suu Kyi, who has been allowed to stand in an April by-election, and the halting of an unpopular Chinese-backed mega dam.
The United States and the European Union however have called for more progress before they lift economic sanctions, calling in particular for the release of hundreds of political prisoners and an end to ethnic conflict.
- AFP/al
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