Martial law will be lifted in Fiji this week, Commodore Voreqe "Frank" Bainimarama said in a New Year speech.
The military ruler, who seized power in a 2006 coup, said that consultations on a new constitution would begin next month.
"To facilitate this consultation process, the public emergency regulations will cease from 7 January 2012," he said on Monday.
The regulations have been in place since April 2009.
Cmdr Bainimarama imposed the emergency law - which censored the media and banned public meetings - after the Fiji Appeal Court ruled that his coup was illegal. The constitution was also repealed.
Fiji was suspended from the Commonwealth in the same year when it failed to hold elections despite calls to do so.
The Pacific nation has seen four coups since 1987. Its politics is marked by tension between the indigenous Fijians and Indo-Fijians, the descendents of indentured labourers brought from India.
In his message, Cmdr Bainimarama stressed that the new constitution needed to be based on equal rights for all Fijians. He has also promised to hold elections in 2014.
But he said ''public order, protecting the vulnerable and safeguarding the economy, will always be paramount", despite the lifting of emergency rule.
Australia and New Zealand, which maintain sanctions on Fiji, welcomed the move cautiously.
''There is a long way to go in restoring democracy to Fiji. We are keen to see how these developments play out,'' said Australia's Parliamentary Secretary for Pacific Island Affairs Richard Marles.