Myanmar's president on Friday ordered a halt to construction of a controversial $3.6 billion mega dam following rare public opposition over the Chinese-backed hydropower project.
Resistance to the Myitsone Dam on the Irrawaddy River has been building as pro-democracy and environmental activists test the limits of their freedom under the new nominally civilian regime.
President Thein Sein, whose government has recently shown signs of reaching out to its opponents, said in a message to parliament in the capital Naypyidaw that work on the project in northern Kachin state would be suspended.
"We have to respect the will of the people as our government is elected by the people," he said.
"We have a responsibility to solve the worries of the people so we will stop construction of the Myitsone Dam during our current government."
In March Myanmar's junta handed power to a new government whose ranks are filled with former generals.
Environmentalists warn the dam project would inundate an area about the size of Singapore, submerging dozens of villages, displacing at least 10,000 people and irreversibly damaging one of the world's most biodiverse areas.
Pro-democracy leader Aung San Suu Kyi is among those who have urged the authorities to review the project, which is backed by energy giant China Power Investment Corp. The dissident welcomed the suspension.
"It's good to listen to the people's voice. That's what all governments should do," Suu Kyi told reporters.
The Nobel laureate told AFP in a recent interview that there was "a growing consciousness of the need to protect the Irrawaddy".
She added: "It's something that we're all concerned about because the Irrawaddy is very important for the whole country, economically, geographically, ecologically and emotionally."
The United States hailed the decision, saying it showed the military-backed leadership is listening to its people.
"We consider it a significant and positive step that the (Myanmar) government is endeavoring in this case to respond to the concerns of its people," State Department spokeswoman Victoria Nuland told reporters.
Police last week arrested a man who staged a rare solo protest against the project outside a Chinese embassy building in Yangon.
They also blocked a rally this week by people seeking the release of political prisoners and an end to the Myitsone project, electricity from which is destined for neighbouring China. No arrests were made on that occasion.
Protests are rare in authoritarian Myanmar, where pro-democracy rallies in 1988 and 2007 were brutally crushed by the junta.
Friday's announcement marked an unexpected U-turn by the regime. Local media had quoted the minister for electric power as saying earlier in September that construction of the dam would go ahead despite public concerns.
"I'm very glad the president decided to stop it. We have achieved our goal," said Maung Sein Win, a famous writer and outspoken critic of the dam.
For the people of Kachin, the Myitsone dam has come to symbolise the struggles they have faced for decades as a marginalised ethnic group in the repressed nation under almost half a century of military rule.
Activists urged China Power Investment Corp. to remove workers and equipment from the site and to allow local villagers who were forced to relocate to go home.
The Burma Rivers Network, a network of groups representing dam-affected communities, also called for six other mega dams planned on the Irrawaddy's tributaries to be scrapped.
"Building these six dams will also cause irreparable environmental destruction, unpredictable water surges and shortages, and inflict social and economic damage to the millions who depend on the Irrawaddy. Thousands of Kachin villagers will also be forced to relocate," it said in a statement.
In recent weeks fighting has erupted between ethnic rebels and government troops in the area.
In April a series of bomb blasts at the site of the Myitsone Dam destroyed cars and buildings and left one man wounded.
And in August state media accused ethnic fighters of shooting dead seven people, including civilian workers, at a different Chinese-run dam.