The Falkland Islands are to hold a referendum on their "political status" in a bid to end the continuing dispute with Argentina over their sovereignty.
The vote will be held in the first half of 2013, the Falklands government said.
The announcement comes amid increasing tensions between Britain and Argentina over the disputed territory, which the South American country calls Las Malvinas.
Britain has controlled the islands since 1833 - except for 74 days of occupation in 1982 - but Argentina claims it inherited rights to them from Spain upon its declaration of independence in 1863.
The Falkland Islands government said it hopes a referendum will send a message to the Argentinian president that islanders want to remain British.
"I have no doubt that the people of the Falklands wish for the islands to remain a self-governing overseas territory of the United Kingdom," Gavin Short, chairman of the islands' Legislative Assembly, said.
"We certainly have no desire to be ruled by the government in Buenos Aires, a fact that is immediately obvious to anyone who has visited the islands and heard our views....
"The Argentine government deploys misleading rhetoric that wrongly implies that we have no strong views or even that we are being held hostage by the UK military.
"This is simply absurd."
Foreign Secretary William Hague said the UK backs the referendum.
"The British Government has been consistent in its view that the future of the Falklands can only be determined by the people who live there," he said.
"So the Prime Minister and I support this initiative to demonstrate - without doubt - the definitive view of the Falkland Islands people."
While Foreign Office minister Jeremy Browne, who arrived on the islands on Monday, described the announcement as a "truly significant moment".
"It will give the Falkland Islands people the opportunity to send a clear message - not just to Argentina, but to the whole of the international community - that the islanders, and they alone, are masters of their fate," he said.
"Whilst it is for the islanders to choose, let me be clear: the British Government greatly values the links between the UK and the Falkland Islands.
"We believe these should continue and deepen, long into the future.
"And if this proves to be the will of the Falkland Islands people, then we in the UK will not just respect it, but will continue actively to defend this act of self-determination from those who seek to challenge it."
The territory is 7,780 miles from the UK and 1,140 miles from Buenos Aires, but the Falkland Island government's UK representative said its location does not matter.
"The distance is irrelevant really, it's how we feel," Sukey Cameron told Sky News.
"And most of the population have very strong links with the UK.
"The Islands are an incredibly British place - it's very obvious when you're there just how British the feeling is."
This year marks the 30th anniversary of the bloody conflict between Argentina and the UK - but tensions between the two countries have escalated over recent months.
Argentina has taken steps to sue a number of UK's oil exploration companies that have drilled around the islands.
And it described the decision to send Prince William to the region for part of his helicopter rescue pilot training as "provocative".
Christina Fernandez de Kirchner, the Argentine President, also accused the UK of "militarising" the South Atlantic when it sent the Royal Navy's most advanced warship - HMS Dauntless - to the islands.
While the British Government and the International Olympics Committee criticised an Argentine advert featuring one of their Olympic hopefuls preparing on the Falkland Islands.
The population of the islands is around 3,000, and just over half of those on the electoral role are expected to vote in the referendum.