African ivory is highly sought after in China where it is seen as a status symbol and prices for a kilo (2.2 pounds) can reach as much as USD 1,100.
"China will gradually stop the processing and sales of ivories for commercial purposes by the end of 2017," the official Xinhua news agency said, citing a government statement.
The announcement follows Beijing's move in March to widen a ban on imports of all ivory and ivory products acquired before 1975 after pressure to restrict a trade that sees thousands of elephants slaughtered every year.
"This is great news that will shut down the world's largest market for elephant ivory," Aili Kang, executive director of the Wildlife Conservation Society in Asia, said in a statement.
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"I am very proud of my country for showing this leadership that will help ensure that elephants have a fighting chance to beat extinction. This is a game changer for Africa's elephants."
Conservationists estimate that more than 20,000 elephants were killed for their ivory last year, with similar tolls in previous years. The WWF campaign group says 415,000 of the animals remain.
Like other countries, China permits the resale of ivory bought before the 1989 ban -- and also has a stockpile purchased with CITES approval in 2008, which it releases for sale with certification.
WWF also praised China's move to a complete ban but called on the Chinese territory of Hong Kong to bring forward a plan to end its ivory trade by 2021.
"With China's market closed, Hong Kong can become a preferred market for traffickers to launder illegal ivory under cover of the legal ivory trade," said Cheryl Lo, senior wildlife crime officer at WWF.