Land Boundary Agreement ratified in Dhaka in the presence of PM Modi, Bangladesh PM Sheikh Hasina and West Bengal Chief Minister Mamata Banerjee.
Prime Minister Narendra Modi arrived in Bangladesh on Saturday to seal a land pact which will finally allow tens of thousands of people living in border enclaves to choose their nationality after decades of stateless limbo.
During his two-day visit to India's closest ally, PM Modi is also expected to sign a raft of trade and transport deals and meet Bangladesh's embattled opposition leader Khaleda Zia.
But his first trip to Dhaka since his election last May will be dominated by the deal to permanently fix the contours of a border which stretches 4,096 kilometres along India's eastern flank. PM Modi and his Bangladesh counterpart Sheikh Hasina on Saturday evening witnessed the exchange of instrument of ratification of Land Boundary Agreement between the two countries.
While Delhi's relations with China and Pakistan continue to be dogged by border disputes, the Land Boundary Agreement's ratification will remove a thorn that has troubled relations between India and Bangladesh since the latter's 1971 war of secession from Pakistan.
India's intervention on behalf of the independence fighters proved decisive in that conflict and successive Bangladeshi governments have enjoyed close ties with India.
But an agreement on the ownership of 162 enclaves - essentially islands of land resulting from ownership arrangements made centuries ago by local princes - had proved elusive in the decades since.
Bangladesh actually endorsed the deal in 1974 but it was only last month that the Indian Parliament gave its approval, teeing up Saturday's joint ratification ceremony between PM Modi and Premier Hasina.
Under the agreement, the countries will exchange territories: 111 enclaves will be transferred to Bangladesh and 51 to India.
People living in the enclaves will be allowed to choose to live in India or Bangladesh, with the option of being granted citizenship in the newly designated territories, and the enclaves would effectively cease to exist.
Around 50,000 people are thought to live in the landlocked islands and lack many basic services such as schools, clinics or utility services because they are cut-off from their national governments.- 'Watershed moment' -
PM Modi, who was received by Ms Hasina at the airport, has compared the agreement to the dismantling of the Berlin Wall which marks "a watershed moment in our ties with Bangladesh".
Bangladesh has been similarly effusive, with its Foreign Minister AH Mahmood Ali saying it "would open a new chapter" in ties.
Foreign Secretary S Jaishankar said the deal would help combat smuggling of people, drugs and illegal currency.
"The enclaves in the past have been territories out of bounds for law enforcement agencies. Often they have been misused to seek refuge by elements who have been undermining law and order," he told reporters.
"So the clarity and discipline, which will come from the clearly demarcated borders will help the land border between the countries much more secure."
Wary of China's growing interest in India's backyard, PM Modi has been keen to play a greater leadership role in South Asia since coming to power.
Officials on both sides said PM Modi's visit would see the signing of around 20 agreements aimed at boosting trade and transport links, including deals on the movement of goods across borders and rail projects.
"Regional connectivity and trade would be expanded by signing these deals. We are working to create facilitated mobility corridors for internal trading between the two countries," Mr Ali told reporters.
Just an hour after PM Modi's arrival, top Indian conglomerates Reliance Power and Adani, signed outline agreements with Bangladesh's state-run electricity agency to invest some Rs 32 thousand crores in the country's rickety power sector.
"Top officials of Bangladesh's Power Development Board (PDB) and those from Reliance Power and Adani signed the deals in Dhaka to generate 4,600 megawatt of electricity," PDB spokesman Saiful Hasan told AFP.
But a breakthrough in a dispute about the sharing of water from the Teesta river which flows through both nations is not expected.
PM Modi's talks with Ms Zia will also be closely watched by observers with the opposition leader's long-running calls for fresh elections having gained little traction.
Officials have played down the idea of PM Modi playing a mediation role in the dispute between Ms Hasina and Ms Zia but would instead pressure Ms Zia to ensure an end to anti-government attacks.
Scores of people have been killed in firebomb attacks on vehicles since Ms Zia called a transport blockade at the start of the year in a bid to topple Ms Hasina.
India held off from criticising Ms Hasina's re-election in January 2014 in a contest that was boycotted by the opposition and dismissed as "not credible" by Western nations.