Greater Manchester is to get a directly elected mayor in 2017 in return for wide ranging powers over transport, housing, planning, health, policing and the economy.
The announcement by Chancellor George Osborne today will increase pressure on Birmingham and the West Midlands authorities to take a similar steps towards closer cooperation or risk being left behind.
Manchester will become the first city outside London to get a regional elected mayor and with it increased powers to set the region's own political direction - rather than begging for approval and funding handouts from Government.
The Chancellor said: "This is a massive moment for the north of England and our plan to build the Northern Powerhouse.
"After several months of private discussions with local representatives from all three parties, I have reached agreement with the civic leaders of Greater Manchester to create the first metro-wide elected mayor outside of London.
"This will give Mancunians a powerful voice and bring practical improvements for local people, with better transport links, an Oyster-style travelcard, and more investment in skills and the city's economy.
"I want to talk to other cities who are keen to follow Manchester's lead - every city is different and no model of local power will be the same."
Manchester has long established combined authority and leading the Government to make this historic offer of wide-ranging powers.
Meanwhile, Birmingham and its neighbours in the Black Country and Solihull are still negotiating over the setting up of a combined regional authority which has been promised by Christmas.
Birmingham council leader Sir Albert Bore has been a long-term advocate of close co-operation at a regional level but this view has not always been shared with leaders of neighbouring local authorities.
Birmingham Labour councillor Ian Cruise said: "If West Midlands leaders hadn't dithered so much over last few years, we could have been in same position. Is this the kick up the backside we needed?"
Last week, Labour shadow business secretary Chuka Umunna told the Birmingham Post he wanted to see a metro-mayor in the West Midlands and, with Tory chancellor George Osborne now pushing one in Manchester, it is likely that this will happen whatever Government is in power after 2015.
George Osborne's offer to the ten Manchester authorities includes:
● Control of the region’s £500m skills budget
● A £450m tram extension to Trafford Park
● £300m in housebuilding cash
● Power to combine health and social care funds together - and oversee back-to-work schemes
● A pledge to make Manchester a science capital
● In return, the ten leaders have agreed, after years of debate, to have an elected figurehead to oversee them
That is likely to happen in 2017 - if the Conservatives are in government. The role of police and crime commissioner will merge with that of the elected mayor.
Manchester council leader Sir Richard Leese said: "Greater Manchester has been in the vanguard of the national devolution debate.
"It was clear that an over-centralised national system was not delivering the best results for our people or our economy.
"We are extremely pleased that we can now demonstrate what a city region with greater freedoms can achieve and contribute further to the growth of the UK.
"Our ultimate ambition is for full devolution of all public spending in Greater Manchester, currently around £22 billion a year, so that we either influence or control the whole amount.
"We recognise that this cannot happen overnight and there needs to be a staged approach based on evidence that devolution delivers increased economic growth and better public services. But today’s settlement is a huge move forwards and a road map for the future."