The agreement came at talks between officials and the Karen National Union in Hpa-an, the capital of eastern Karen state.
Both sides agreed to a ceasefire, to open communication offices and to allow passage through each other's territories, the official said.
The Karen have fought for greater autonomy for more than 60 years.
Prior to this deal, it was the only major group that had not reached a peace agreement.
The government has negotiated ceasefires with 17 other insurgent groups since 1989.
Last year, talks were held near the Thai-Burma border with several ethnic groups, including the Shan and Karen.
In December 2011, a deal for a ceasefire was reached between the local government and the Shan State Army-South. The Shan is another major ethnic rebel group, based in the northeastern Shan state.
Efforts to end conflict are part of a larger bid by the military-backed nominally civilian government that came to power after Burma's first elections in 20 years in November 2010.