Hong Kong democracy activists reacted with alarm after China's central government asserted its right to final authority over the territory's political future.
The Standing Committee of China's National People's Congress ruled that Hong Kong must get Beijing's permission before its legislature may debate proposals for democratic reform.
The ruling goes to the heart of a debate over Hong Kong's constitution, known as the Basic Law.
The document provides for the possible direct election of Hong Kong's chief executive by popular vote as early as 2007. The legislature may be directly elected by 2008. But the ruling means the changes may not be done until Beijing says they can be.
Presently, Hong Kong's leader, the chief executive, is appointed by a pro-Beijing committee. Less than half the legislature is directly elected, the rest are appointed or are chosen by professional groups.
Law Yuk Kai, director of the group Hong Kong Human Rights Monitor, says the ruling is a political power play.
"This is a barbaric act in the name of law?," he said. "The Chinese leadership has already severely undermined the integrity of the Basic Law itself."
Hong Kong retained its Western style judiciary and civil liberties when the colonial British government handed it back to Chinese sovereignty in 1997.
Bruce Liu, an elected municipal official, says reform legislation should originate in Hong Kong, and reach the National People's Congress only after extensive discussion.
He says Tuesday's ruling flips that process on its head, and lets Beijing block debate.
"The NPC would take the initiative, if the National People's Congress takes the position to negate the proposed bill, then we would not have the opportunity to discuss that bill," said Mr. Liu.
Chinese authorities have expressed a desire to temper the speed of democratic reform in Hong Kong since last July, when a peaceful protest by half a million Hong Kong residents prompted the government to postpone a controversial internal security law. Some Hong Kong residents say the NPC ruling will heat up, not cool down, the desire for reforms.
Despite the controversy, financial markets are taking the ruling in stride. The Hang Seng ended the day up more than one percent.