The debate follows trial reforms in 11 provinces where migrants have been allowed to change their registration to take advantage of welfare and public services.

It is predicted that 50 percent Chinese would live in cities by 2010, compared with the current ratio of 41 percent, the Communist Party flagship newspaper, the People's Daily, reported.

China's household registration system, set up in 1958, divides the population into rural households and non-rural households, and individual interests and rights, such as education, healthcare, housing and employment, are linked to the household registration.

Under the system, rural citizens have no access to social welfare in cities, even though they may live and work there.

Since the adoption of the policy of reform and opening up, China has witnessed bursting migration of rural labor to urban areas in search of work opportunities, said the report.

More than 120 million migrant rural workers have moved to cities in search of work.

"The household registration system, though it played a positive role in the past, now to some extent stands in the way of the country's urbanization, which is essential to China's modernization," said the report.

But the report warned against scrapping the system for fear of causing social unrest, saying the government should gradually change the current system to a unified household registration system, which eliminates the rural and non-rural division.

In some provinces, such as the economically well-developed Jiangsu Province, governments allow migrants with stable jobs and fixed residences to register where they live and work rather than in their birthplaces, so that they can enjoy the urban welfare system.

Gansu Province in western China also allows migrant rural workers who have lived in a stable city residence for three years to register as non-rural citizens.

Eleven provinces are piloting the unified household registration system, but the government has not set a time frame for national reform.