Turkey, which banned the popular website for more than two years in 2008, has long come under international criticism for its restrictive internet laws and over the EU-candidate's record on freedom of expression.
"This is an important development. For a long time we have made a call to internet firms in Turkey: 'you are operating in this country, you must be resident here'," Transport and Communications Minister Binali Yildirim said.
"Finally, this sharing site (YouTube) has decided to reside in Turkey. It is now operating under 'com.tr'," he told reporters, referring to Turkey's internet domain initials.
YouTube released a brief statement on Monday saying it had launched its Turkish website, which would give users a "Turkish-language experience with great, locally relevant content". It made no mention of any dispute with the Turkish government.
But Yildirim, using a common Turkish expression, said YouTube, a subsidiary of the world's No. 1 internet search engine Google Inc, had agreed to set up its Turkish operation after it had "felt the pressure".
"It will now be in a binding and critical position to implement court decisions and remove any objectionable publications," Mr Yildirim said. "Further more it will also pay taxes on its operations."
A YouTube spokeswoman said Internet users browsing on a Turkish IP address would automatically be redirected to the 'youtube.com.tr' domain. If Turkey had a valid court order banning a particular video, access to that content would also be blocked on the main 'youtube.com' address.
Last week, a Turkish court issued an order allowing authorities to block access to an amateurish online video "The Innocence of Muslims", which sparked a wave of deadly riots in the Muslim world.
Mr Yildirim, who initiated the court order, said removing such videos in the past had been problematic because of the need to contact organisations outside Turkey. But officials would be able to move much quicker, now that YouTube was registered in Turkey, he added.
"Now, as soon as the court makes its decision, all the demands will be carried out immediately," Mr Yildirim said.
In May 2008, the government blocked access to YouTube for 30 months after users posted videos Turkey deemed insulting to the republic's founder, Mustafa Kemal Ataturk.
Media watchdog Reporters sans Frontieres (RSF) in 2010 placed Turkey on its list of "countries under surveillance" and urged the government to guarantee online free expression in Turkey, where several thousand sites are banned.
Rights groups have long pressed Turkey to reform its harsh internet laws and analysts have criticised the ease with which citizens and politicians can apply under Turkish law to have a site banned.
Turkey cites offences including child pornography and insulting Ataturk to justify blocking websites. But Turkish users have been able to circumvent bans by using proxy websites.