"A momentum for peace is already under way," said the Prime Minister, Bill Skate, in a statement released in Port Moresby welcoming the signing of the peace accord.
The so-called Burnham Truce was reached after 10 days of talks at the Burnham army camp, near New Zealand's South Island city of Christchurch.
The conflict, which has claimed thousands of lives and displaced many into care centres, began when landowners revolted in 1988 over damage caused by the huge Panguna copper mine and the royalties they received from it.
Bougainville has been a huge political headache for Papua New Guinea, and the former prime minister Sir Julius Chan this year provoked the country's biggest crisis since independence in 1975 by trying to bring in Anglo- South African mercenaries to put down the rebellion around the mine. The mine now closed, is owned by an arm of the Anglo-Australian giant Rio Tinto Ltd.
The interim truce agreement outlined immediate measures to stop fighting pending a formal meeting of leaders, hopefully by the end of January.
Signatories were representatives of the Papua New Guinea government, the Bougainville Transitional Government which it backs, the rebel Bougainville Interim Government and its associate the Bougainville Revolutionary Army, as well as Papua New Guinea security forces and resistance commanders.
The truce said its signatories agreed to what it called "immediate interim measures" including refraining from acts of armed confrontation.
The various factions also pledged to respect human rights, promote peace and reconciliation in the community and lift all restrictions to restore freedom of movement to islanders, subject to "appropriate clearances".