News of first Burma visit by a US secretary of state in 50 years follows decision by Aung San Suu Kyi's NLD to re-enter politics

Hillary Clinton will become the first US secretary of state in 50 years to visit Burma, it has been announced, as Washington ramped up its efforts to kindle "flickers of progress" in the isolated south-east Asian nation.

The visit next month, announced by Barack Obama, appeared to be a reward for Burma's reforms, which were marked hours earlier by the return to politics of the democracy activist Aung San Suu Kyi.

The double boost was widely applauded as a sign that Burma may be moving in from the political cold, but it contains risks: a political transformation is far from guaranteed in a government system that is still largely under the influence of the military, and the move may add to China's suspicion that the US is attempting an encirclement policy.

In announcing a "historic opportunity" for a top-level diplomatic mission, Obama spelled out that Burma had a long way to go to shake off decades of repression by military leaders. The US has serious concerns over human rights abuses, the detention of political prisoners and Burma's treatment of ethnic minorities.

But Obama said "after years of darkness, we've seen flickers of progress in these last several weeks" – apparently a reference to the government's release of political prisoners, economic reforms and a decision to halt a controversial dam project.

News of Clinton's visit was welcomed by both the Burmese government and supporters of Aung San Suu Kyi. "It's a very good sign," Ko Ko Hlaing, chief political adviser to the president, Thein Sein, told Reuters. "I think it is a significant turn in US policy towards Myanmar … people in Myanmar will welcome, cheer Hillary Clinton because for a time in history, they have never seen a secretary of state."

Clinton warned that although there may be an opening for democracy, the US remained cautious. "We're not ending sanctions. We're not making any abrupt changes," she told Fox News. "We have to do some more fact-finding and that's part of my trip."

Hopes for change have been reinforced by Aung San Suu Kyi, who has formerly re-entered politics after two decades of persecution. Cheers greeted the announcement outside her party headquarters in Rangoon, after members of the National League for Democracy voted unanimously to end their boycott of elections.

Aung San Suu Kyi was released from house arrest this year and has since held meetings with Thein Sein. This had created an opportunity, said Obama at a regional summit in Bali. "Last night, I spoke to Aung San Suu Kyi directly and confirmed she supports American engagement to move this process forward," he said.

Burma took another step out of isolation on Thursday by winning the support of its neighbours to chair the Association of South East Asian Nations in 2014. The last time it was due to take up the rotating position it was forced to skip its turn because of a dispute over the human rights situation under military rule.

Burma's closer engagement with the US may be viewed with suspicion in China, which has long been its southern neighbour's main political backer on the international stage and second-largest trading partner, after Thailand.

The Burmese government recently surprised its ally by announcing a halt to construction of the Myitsone dam, which was being funded by Chinese firms to supply electricity across the border. The government in Beijing has downplayed talk of friction, but some analysts and media commentators fear the US is engaged in a policy of encirclement.

Obama denies this, but he has used his current tour of the region to announce the deployment of troops to Australia and to emphasise a strong US role in Asia. The US ambassador to Beijing, Gary Locke, said this was no cause for alarm and had been under consideration for several years.

"This announcement of marines in Australia is certainly not aimed at China," Locke said, emphasising the strength and importance of the world's most important bilateral relationship. "There are almost no issues in the world that cannot be solved if the United States and China work together."