Jeremy Corbyn has backed Scottish Labour leader Kezia Dugdale's plans for more autonomy for her party.
The two leaders said the party in other parts of the UK would also be able to bring forward their own proposals for greater autonomy.
Ms Dugdale has already outlined her plans for control over policy making, candidate selection and membership to be transferred north of the border.
Her joint statement with Mr Corbyn said: "We will ask Labour's NEC (National Executive Committee), the Scottish Executive Committee and other bodies of the party to agree new arrangements that will deliver a more autonomous Scottish party and also more democratic institutions across the UK.
"There will be co-operation between Scottish Labour and UK Labour on reserved policy areas.
"This will be a major change in the way we operate and will put beyond doubt the fact that decisions about Scottish Labour will be taken by Scottish Labour."
Debate over the position of the party in Scotland has raged since last year's independence referendum, after which former leader Johann Lamont resigned blasting the London leadership for treating it like a ''branch office''.
Speaking before addressing the Parliamentary Labour Party in the House of Commons, Ms Dugdale said: "I need to be able to set the Scottish Labour Party on a different course, to take policy decisions, to use the new wealth and the powers that are coming to the Scottish Parliament to put them into effect.
"This means that policy positions that the Scottish Labour Party take will be made in Scotland by the people in the Scottish Labour Party. I think that is something that voters in Scotland had long been crying out for.
"I got a very clear message when we lost all our seats in May that people wanted to see the end of the Labour Party in Scotland being run in Westminster.
"There may be occasions where there is a conflicting position (with the UK Labour Party) but, like many other federal countries across Europe, there is a process for addressing that.
"This is a bold and radical change and it has to happen to make sure that the Scottish Labour Party is fit for the future.
"This is about maintaining the UK Labour Party. It is not a threat. It is not an independent Labour party. It is a federal solution."
She hailed the joint statement as "one of the biggest changes in Scottish Labour history".
Ms Dugdale added: "I don't want this to be a Scottish-only solution. I want this major package of reforms to kick start reform across the UK Labour Party.
"Friends in Wales and the English regions should see this as an opportunity for greater autonomy in their part of the country."
Mr Corbyn said: "When I was elected leader of the Labour Party I said I wanted a new kind of politics, where people had greater ownership over how decisions are made.
"That applies to the Labour Party just as much as it does to our country."
Some have expressed unease about the prospect of different policies emerging on each side of the border on issues such as Trident, due to be debated at Scottish Labour's conference in Perth this week.
At the weekend former home secretary David Blunkett told the Sunday Times: ''We need to work this through sensibly if we are not to completely fragment the message and with it the values and identity that make up a common Labour Party.''
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