In the latest of Myanmar's tentative attempts at reform, a delegation of ministers from the capital Naypyidaw and senior members of the Karen National Union (KNU) signed the pact in Hpa-an, capital of war-torn eastern Karen state.
KNU spokesman David Htaw said the group would now choose a representative to hold further talks with the central government within 45 days of the preliminary pact, which he said was "based on trust".
"Our duty just started. We have many things to do," he told reporters, adding that the government had shown "real benevolence".
The military-dominated government, which came to power in March last year after decades of outright army rule, has been trying to reach out to ethnic groups as part of reforms seemingly aimed at ending its isolated status.
Railways minister Aung Min, among those who signed the ceasefire, declared the day a "victory of 60 million people" -- referring to the whole population of Myanmar.
The United States welcomed the move as a "good step".
State Department spokeswoman Victora Nuland said Washington had long urged dialogue between the government and ethnic rebels and this was a "central topic" when Secretary of State Hillary Clinton held talks with Myanmar leaders more than a month ago.
Civil war has gripped parts of the country since its independence in 1948, and an end to the conflicts, as well as to alleged human rights abuses involving government troops, is a key demand of the international community.
Vast numbers of villagers in Karen state, scene of Myanmar's oldest insurgency, have been forced to flee, and tens of thousands of these refugees live in camps across the border in Thailand.
Rights groups say the government's counter-insurgency campaigns over the years have deliberately targeted civilians, driving them from their homes, destroying villages and forcing them to work for the army.
News of the ceasefire was greeted warily by Karen Communities Worldwide, which represents Karen who have fled the eastern region of Myanmar.
"A ceasefire alone tackles the symptoms, not the causes. There must also be political dialogue for a permanent political solution," a statement said, accusing the government of still attacking and killing in Karen villages.
Myanmar expert Renaud Egreteau, at the University of Hong Kong, also warned that previous attempts at lasting peace had failed and called for all Karen splinter groups to be included in further necessary talks.
"We should temper this phase of euphoria," he told AFP.
Myanmar's previous ruling generals justified decades of iron-fisted military rule as a way of maintaining stability and unity in a country where one third of the population is made up of ethnic minorities.
Although the peace deal with the KNU marks a major breakthrough with one of the most prominent ethnic rebel groups, tensions remain with other ethnic factions, who largely seek greater autonomy and rights.
Fighting in northern Kachin state between the army and rebels since June last year has displaced tens of thousands of people.
The conflict has continued despite President Thein Sein ordering the army to halt operations, according to global campaign group Refugees International.
In December, a ceasefire deal was reached between the local government and the Shan State Army-South, another major ethnic guerrilla group, based in northeastern Shan state.
Since the new government was installed, other promising steps have included talks with democracy icon Aung San Suu Kyi, who has been allowed to stand in an April by-election, and the halting of an unpopular Chinese-backed mega dam.
The United States and the European Union however have called for more progress before they lift economic sanctions, calling in particular for the release of hundreds of political prisoners and an end to ethnic conflicts.