The UK has decided to let Huawei continue to be used in its 5G networks but with restrictions, despite pressure from the US to block the firm.
The Chinese firm will be banned from supplying kit to "sensitive parts" of the network, known as the core.
In addition, it will only be allowed to account for 35% of the kit in a network's periphery, which includes radio masts.
And it will be excluded from areas near military bases and nuclear sites.
"Huawei is reassured by the UK government's confirmation that we can continue working with our customers to keep the 5G rollout on track," the firm's UK chief Victor Zhang said in a statement.
"It gives the UK access to world-leading technology and ensures a competitive market."
The Prime Minister had faced pressure from the US and some Conservative MPs to block the Chinese tech giant on the grounds of national security.
But Beijing had warned the UK there could be "substantial" repercussions to other trade and investment plans had the company been banned outright.
The decision has been described as the biggest test of Boris Johnson's post-Brexit strategy to date.
Newt Gingrich, a Republican and former Speaker of the US House of Representatives, described the decision as a "strategic defeat" for his country.
Huawei has always denied that it would help the Chinese government attack one of its clients. The firm's founder has said he would "shut the company down" rather than aid "any spying activities".
Conservative MP Tom Tugendhat, former chair of the Foreign Affairs Select Committee, tweeted that the government's "statement leaves many concerns and does not close the UK's networks to a frequently malign international actor".
New 5G suppliers
Three out of four of the UK's mobile networks had already decided to use and deploy Huawei's 5G products in the periphery.
"This is a good compromise between alleviating 'security' concerns and making sure that the 5G UK market is not harmed," commented Dimitris Mavrakis, a telecoms analyst at ABI Research.
"It means there will be minimal disruption to existing 5G rollout plans."
The government has also said the UK needs to "improve the diversity in the supply of equipment" to the country's telecom networks.
At present, beyond Huawei, there are four main providers:
- Nokia - a Finnish company
- Ericsson - a Swedish company
- Samsung - a South Korean company
- ZTE - a Chinese company that the country's government part-owns
Ministers will support "the emergence of new, disruptive entrants to the supply chain" and promote "the adoption of open, interoperable standards," a statement from the Department for Digital, Culture, Media and Sport said.
The new rules still have to be debated and approved by MPs.
Tim Morrison, a former US National Security Council official, urged them to rebel.
"There is still time for backbenchers in both parties to save the special relationship and the privacy rights of Britons if they vote to block this mistake by the government."
What is the core and why is Huawei being kept out of it?
A mobile phone network's core is sometimes likened to its heart or brain.
It is where voice and other data is routed across various sub-networks and computer servers to ensure it gets to its desired destination.