Tung Chee-hwa, Hong Kong's leader-in-waiting, who had publicly called for more say over future electoral arrangements, said the Preparatory Committee "gave Hong Kong a lot of flexibility, a lot of space".
Its decision, taken during a two-day meeting in Peking that ended yesterday, "demonstrates that we Hong Kong people genuinely are our own masters. We can make the final decision on what direction we take," said Mr Tung, who will lead Hong Kong after its return to Chinese rule on 1 July.
Peking has promised the British colony a "high degree of autonomy" after it becomes a Special Administrative Region of China, with its capitalist lifestyle and many of its freedoms kept intact.
But China also says that after 1 July, Hong Kong's legislature must be disbanded, to be replaced by a provisional body, because it was elected under rules it did not agree to.
The provisional body, criticised because it was not popularly elected, will function until fresh legislative elections are held under new rules.
Mr Tung said he wanted elections held "as soon as practicable" in the second quarter of 1998. The Preparatory Committee drew up methods for organising the 1998 elections, but left final decisions on which of the methods to use to Mr Tung's government-in-waiting.
Mr Tung can employ either proportional representation or multi-seat, single-voting in 20 constituencies. Another 30 seats will be chosen by professional groups. The remaining 10 seats in the 60-member legislature will be chosen by committee.
Hong Kong's pro-democracy parties, which have outshone their pro-China rivals in previous elections, fear they may get fewer seats under the new system.
Pan Wei, an associate professor of international studies at Peking University, said he expects no single party will be able to dominate the polls in post-1997 Hong Kong.
"The Chinese are good at electoral engineering," he said.