Consoles produced in the Shanghai Free-Trade Zone will automatically be approved for sale in the rest of China, according to a Ministry of Culture notice dated Friday.
The announcement eases a sales ban imposed in 2000 due to concern Chinese children would waste time playing video games.
Communist leaders are promoting entertainment and technology development as part of a marathon effort to shift the world's second-largest economy to more sustainable growth supported by domestic consumption and cleaner industries.
The Shanghai trade zone was created in 2013 and gives foreign companies wider access to a range of industries, allowing bigger ownership stakes and activities that are prohibited elsewhere in China.
The latest rules are intended to promote technology development and a "healthy and progressive" entertainment environment, the ministry notice said.
Content of games will be subject to government censorship, it said. The country's leaders impose strict control over content they deem to be obscene, violent or politically sensitive, and under the rules of the FTZ all games must still pass inspection by cultural authorities.
China had suspended the ban on game consoles in January last year, but at the time the State Council did not reveal for how long the suspension will last. Microsoft released the Xbox One in China in September last year, while Sony released the PlayStation 4 only in March this year.
Written with agency inputs