In a statement, the Serbian government said: "After the decision of the Serbian parliament on June 5, which acknowledges the independence of Montenegro, we have the conditions for the government to recognise" its nationhood.
The Beta news agency reported that Vuk Draskovic, Serbia's foreign minister, later informed his Montenegrin counterpart Miodrag Vlahovic about his government's decision and intention to establish diplomatic ties with the newly independent country.
"Serbia is determined to develop friendly and neighbourly relations with Montenegro as well as respect and cherish the common historic values" on both sides, the ministry said in a statement.
The Montenegro parliament proclaimed independence on June 3 following the May 21 referendum in which 55.5 percent of voters opted to break away from Serbia and end the union which was all that was left of the old Yugoslavia.
Government stalled decision
The government of Serbia's moderate nationalist Prime Minister Vojislav Kostunica had openly opposed Montenegro's independence.
It had stalled for days before stating it recognised the Montenegro’s independence.
But all 126 deputies present in Serbia’s 250-seat parliament have now backed an order to the Serbian government and state bodies to complete all formalities about the succession and resolve all disputed issues with Montenegro.
Citizenship “allowed”
Belgrade also said it had "decided to allow all Montenegrins living on the territory of Serbia to receive Serbian citizenship".
It also said it would allow Montenegrin pupils to continue their studies in Serbian institutions with the "same rights as Serbian students".
In addition, under the constitutional charter of the union, Serbia now inherits membership of the United Nations and other international institutions, leaving Montenegro to apply in its own right.
The world's newest country has now been recognised by the European Union, the United States, Russia, China, Italy, Turkey, Denmark and the Czech Republic; regional southeast European neighbours Albania and Greece; and three other former Yugoslav republics, Bosnia, Croatia and Macedonia.
Iceland and its people have become the objects of admiration across Montenegro ever since Reykjavik led the way in recognising Montenegro last week.
Newspapers in Montenegro report that Montenegrin families have been offering Icelanders free holidays in their homes, and several papers have published maps of Iceland on their front pages, explaining the history and economy of the country.