BBC News - China rules out open Hong Kong chief executive poll
The decision is expected to limit the selection of candidates to pro-Beijing figures.
The pro-democracy Occupy Central movement says it will launch a sit-in in the city's central business district in protest.
The election for Hong Kong's chief executive is due in 2017 and will be the first time the holder of the post is directly chosen by voters.
The Standing Committee of China's National People's Congress said in its decision that while the election would represent "historic progress", "the sovereignty, security and development interests of the country are at stake," and therefore "there is a need to proceed in a prudent and steady manner".