Previously people in the countryside were only regarded as poor if they earned less than 55 cents a day.
The move should see millions more people get access to state benefits.
Some 27 million people were classified as rural poor last year. The new threshold is expected to increase that number fourfold.
Chinese President Hu Jintao has made tackling rural poverty a cornerstone of his leadership.
He has rolled out large-scale development projects across China’s poverty-stricken western provinces, in a bid to create what he calls a “harmonious society”.
On Tuesday, state media quoted him as saying that by 2020 no-one in China would need to worry about food and clothing.
“Their access to compulsory education, basic medical care and housing will also be ensured,” he said.
“The current trend of a widening rich-poor gap will be reversed.”
China has been widely criticised for setting the poverty line too low.
But the latest move puts Beijing much closer to the World Bank’s threshold of $1.25 a day.
Those newly classified as poor will be entitled to government help such as subsidies, job training, discounted loans and employment opportunities at government-funded rural infrastructure projects.