Splitting the BHV electoral district, which surrounds Belgian capital Brussels, was a key demand of political parties in the Dutch-speaking Flanders region, where nationalists made huge strides in general elections last year.
Elio Di Rupo, the socialist leader from the French-speaking Walloon region who is leading negotiations on setting up a government, said the eight parties in the talks had finally struck an agreement to split the district.
"The eight parties have together succeeded in overcoming the obstacles which have created difficulties these last few days," Di Rupo said in a statement.
"Even as there remains much work to be done, clearing the hurdle of Brussels-Halle-Vilvoorde constitutes an important step," he added.
The deal was hailed as "historic" by the Belgian press on both sides of the linguistic border, with most commentators now expecting a government to be formed within weeks, if not within days.
The bilingual Brussels region is geographically situated in Flanders and politicians there have put linguistic issues on top of the country's political agenda, holding up a deal to form a federal government until some municipalities are made part of Flanders proper.
BHV is the only district that is officially bilingual, rather than French- or Dutch-speaking. Francophones in those municipalities, who are often in the majority, enjoy special rights such as being able to receive administrative documents in French and run in local elections.
"Even if the work is far from being finished and numerous debates have to be worked out, the steps taken today [...] constitute an important step," Di Rupo's statement continued.
Over 500 days of negotiation
Negotiations to form a government saw a breakthrough in July, when Flemish conservative party CD&V agreed to join government talks without the New Flemish Alliance (N-VA), a nationalist party whose long-term ambition is to separate Flanders from Belgium.
The move was a U-turn for CD&V, which had until then insisted on the N-VA's participation in government talks amid fears that the separatist party would win even more votes at its own expense if new elections were held.
Now with the BHV issue resolved, the path is clear for Belgium to have a new government.
"When we have split BHV, when we have resolved this problem, it will be a sign of trust and we can negotiate a government," CD&V leader Wouter Beke said in July after agreeing to enter coalition talks.