The people of Wales will be given the opportunity to vote in a referendum to decide whether to take control of powers over income tax, David Cameron has said.
Speaking in Cardiff Bay with deputy Nick Clegg, Mr Cameron announced Wales would be given a new ability to borrow and control of stamp duty revenues.
Mr Cameron said the measures, part of a package to give more responsibility to the Welsh Assembly, were for "a strong Wales inside a strong United Kingdom".
Wales will take control of stamp duty paid by house buyers and landfill tax, bringing a "£200 million revenue stream", according to First Minister Carwyn Jones.
"Today we are announcing new powers for the Welsh people and the Welsh government," Mr Cameron told a packed press conference at the Senedd in Cardiff Bay.
"Power that is about building this country up. Power that's about ensuring what I want and what I know the Deputy Prime Minister wants and the First Minister wants, which is a strong Wales inside a strong United Kingdom."
The new package builds on the recommendations of the Silk Commission, which reported last November and recommended a series of tax and spending powers should be devolved.
Mr Cameron said borrowing powers would help the Welsh government finance improvements to the M4.
"This is like a foot on the windpipe of the Welsh Assembly," Mr Cameron said. "We want to encourage the Welsh Assembly government to take action as soon as possible."
The Welsh Government and Welsh people are to be given the opportunity for a referendum to be held on the devolution of income tax.
"We will be providing, through a Bill in the House of Commons, for a referendum so if the Welsh Assembly government and the Welsh Assembly want to hold a referendum on a devolution on part of income tax, i t will be their decision whether to trigger the referendum. If they do that it will be for the Welsh people to decide if they want these new powers."
Mr Cameron added: "We believe in a strong Wales within a strong United Kingdom. I think it will make for a better accountable government. I think it is good for a government to be responsible for raising some of the money it spends."
Mr Clegg added: "This is a milestone in the devolution of power to Wales and a big step forward.
"This package puts the Welsh people in the driving seat on jobs, transport, infrastructure and housing as well.
"The referendum on power in income tax is entirely a matter for the Welsh people.
"I am an advocate on further devolution with what I think has been a very centralised tax system in the UK as well."
The Prime Minister said certain parts of the Silk Commission, such as handing air passenger duty to Wales, would not be implemented.
"I think the problem with air passenger duty is it would have quite a distortionat e effect on the rest of the United Kingdom," he said.
Mr Cameron and Mr Clegg also announced that the Nato summit will be held in Wales in 2014.
"I was personally very keen to do this," Mr Cameron said. "I think these summits are a great opportunity to showcase different parts of the United Kingdom.
"Scotland has got the Commonwealth Games, London had the Olympics, Northern Ireland the G8, now it's Wales's turn.
"I think it is right for the UK to want to chair this conference at this time. We are coming to the end of this long Afghanistan mission.
"It will be a good moment to reflect on what Nato does next. It is the cornerstone of our defence."
Mr Cameron said 60 heads of state and government would attend the summit, which the UK last hosted in 1990.