The historical announcement was made simultaneously by both U.S. President Barack Obama and Cuban President Raul Castro.
"We will end an outdated approach that for decades has failed to advance our interests and instead we will begin to normalize relations between our two countries. "
"Equally we have recommended re-establishment of diplomatic relations. This does not mean the main issues have been resolved. "
U.S. President Obama's new approach towards Cuba includes re-establishing an embassy in Havana early next year and carrying out high-level exchanges and visits between the two governments.
The Obama administration is also planning to ease a travel ban for US citizens, ease financial restrictions and increase telecommunications links.
President Obama also pledged to discuss with lawmakers the lifting of the half-century-old trade and economic embargo against Cuba, a move that can only be made by Congress.
However, Cuban American senator Marco Rubio denounced the new approach.
"This President has proven today that his foreign policy is more than just naive. It is willfully ignorant of the way the world truly works."
Former Florida governor Jeb Bush who is interested in the 2016 presidency, says the restoration of relations represents a major challenge and called for the embargo to be strengthened.
As the first step of normalization of bilateral relations, a prison swap was carried out Wednesday that saw the release of the alleged American spy Allan Gross and three Cubans who were accused of spying and imprisoned in the United States.
In addition, U.S. officials confirmed that they had also secured the release of an un-named "intelligence asset" who had been imprisoned in Cuba for two decades.
For China Radio International, this is Xiaohong, reporting from Washington D.C.
