The Vatican said it would appoint a papal nuncio to Yangon and that the country would open an embassy at the Vatican, formally wrapping up an accord approved by Myanmar in March.
The move came as Myanmar's de facto leader Aung San Suu Kyi - who is an honorary citizen of Rome - met Pope Francis on the latest leg of a European tour overshadowed by her country's treatment of the Rohingya, a persecuted minority Muslim group in the 90-percent Buddhist country.
Pope Francis has spoken out in the past on behalf of the Rohingya while Nobel peace prize winner Suu Kyi has come under fire for not condemning repression of the minority group by her country's security forces.
Kuu Syi and a small group of officials spent around 20 minutes in Thursday's audience with the leader of the world's 1.3 billion Catholics.
Francis presented the former dissident with a bronze medallion with an image of a blooming desert.
Suu Kyi had talks on Wednesday with Italian foreign minister Angelino Alfano and with EU and Belgian officials in Brussels on Tuesday. She is also due to visit Britain.
In Brussels she reiterated her opposition to a decision by the UN human rights body to send a fact-finding mission to Myanmar to investigate allegations of murder, rape and torture against the Rohingya in Rakhine state.
Alfano said in a statement he had discussed the process of national reconciliation in the country formerly known as Burma, without elaborating. Francis denounced the treatment of the minority Rohingya in February, saying they were being tortured and killed for their faith.
In an address in St Peter's square he described the Rohingya as "good and peaceful people who have suffered for years," urging Catholics to pray for their "brothers and sisters" in Myanmar.
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