The move means South Sudan will open an embassy in the Vatican, while the church will open an apostolic nunciature in Juba.
Meanwhile, Archbishop Leo Boccardi, papal nuncio to Sudan and Eritrea, will continue to represent the Vatican in South Sudan.
"The news that we'll have a nunciature here, and it doesn't matter if it takes six months or two years or more, is a big deal," Father Nicholas Kiri Bate, vicar general of the Archdiocese of Juba, said.
"It may take a while, as things here have their own rhythm. But it's significant in that it reflects the government's desire to collaborate closely with the church. Yet even more importantly it reflects what the people think. Even before independence, the people invited Pope John Paul II to come to our independent country. So this desire for a closer relationship has been there for quite a while," he said.
While the news was welcomed by many in South Sudan, it also underscored serious tensions within the church hierarchy.
A move by South Sudan's Catholic bishops to break away from their colleagues in Sudan and form a separate episcopal conference was squelched by the Vatican last year. After months of tension, a compromise left Cardinal Gabriel Zubeir Wako, archbishop of Khartoum, the Sudanese capital, as the conference president, and conference offices were relocated to Juba.
Most of the conference's members are in South Sudan, and of the four bishops who remain in two dioceses in Sudan, only one is a Sudanese citizen. The other three hold passports from South Sudan.
"They are considered foreigners in the North. Since our governments have a hostile relationship, they are finding it increasingly difficult to be there," Father Kiri said.
The three prelates have had difficulties in getting permission to leave and obtaining visas to re-enter the North.
Father Kiri said the latest development caps a long history of the church earning a place of prominence in South Sudan's history.
"At one time, especially at the end of the first civil war here, the church wasn't at the center of people's lives. Nobody talked to the church. Yet today it's at the center of society, it has a voice, it has a following," he said.
"People want to know what the church has to say. This news is going to add to what we have already achieved. It's a boost not only for Catholics, but for all Christians in the country, encouraging us to take our rightful place in the life of South Sudan," he added.