The news was announced yesterday by both the company and Shanghai's municipal government.

The United States-based company and its Chinese partners will now begin detailed talks about the project, which will be based in Pudong New District, the government's information office said in a statement.

Walt Disney Co welcomed the news.

"China is one of the most dynamic, exciting and important countries in the world, and this approval marks a very significant milestone," said Robert A. Iger, the company's president and CEO.

The approval paves the way for Disney and its Shanghai partners to nail down a final agreement, detailing the construction and operation of the park, the company said.

The first phase of the project will include a "Magic Kingdom-style theme park with characteristics tailored to the Shanghai region and other amenities consistent with Disney's destination resorts worldwide", the company added in its statement.

Zhang Huiming, an economist at Fudan University, said the upcoming visit of US President Barack Obama will help promote the project.

"For the US, it's a matter of the export of American culture," Zhang said.

And, on the streets of Shanghai, Donald Duck and gang already have their supporters.

"I'm thrilled to hear the news," said Lin Fuli, a 23-year-old student from Shanghai Institute of Foreign Trade. "I've been looking forward to this ever since my first visit to the Hong Kong park two years ago."

Lin said the Hong Kong Disneyland was smaller than she hoped and she expects the Shanghai one to be bigger.

The park in Hong Kong, at 1.26 sq km, is the smallest of Disney's five major parks, which are located in the US, France and Japan.

Previous media reports said the first phase of the Shanghai Park, which is expected to be located in Chuansha township, will cover around 4 sq km and cost about $3.6 billion. It is slated for opening in 2014.

"The landing of Disneyland will drive up prices of commercial property, which, in turn, will send local house prices rocketing to a new high soon," predicted Xue Jianxiong, an analyst at real estate services provider E-House (China) Holdings Ltd.

Experts predicted that the dense population of Shanghai and the proximity of other major cities, including Hangzhou, Nanjing and Suzhou, means the park will not have a problem attracting visitors.

"Unlike Hong Kong Disneyland, we expect the park in Shanghai will turn profit quickly," said Qi Xiaozhai, director of Shanghai Commercial Economic Research Center.

However, some were unhappy that the company is moving to town.

Min Guoyao, a resident at Zhaohang village of Chuansha, has lived with his family in a two-floor home for more than 50 years. He now expects his house will be demolished to make way for the project.

"Our family has been living here for many generations. I really have no idea how we'll be resettled in another place," Min said.

And workers at a brick kiln factory in the village also had concerns.

"Our boss will probably shut down the factory next year as he cannot afford the rising rental fee," said a worker surnamed Chen. "We have to find other places to work, which is very hard for us."

The two existing theme parks in Shanghai, Jin Jiang Action Park and Happy Valley, were philosophical about the arrival of Disney.

"We take the Shanghai Disneyland not as a competitor, but as a foreign counterpart that will inspire us to provide better services," said Cui Zhineng, general manager of Jin Jiang Action Park.

Shanghai Happy Valley, which opened to the public on Sept 12, is one of four parks in that group on the mainland. A spokesperson said the arrival of Disney will stimulate the tourism market.

"As a home-grown theme park, we have more products based on the Chinese culture and cater to Chinese visitors and we cost less," said Ren Kelei, chairman of OCT Enterprise Co, which runs Happy Valley.