The market rallied with many heavyweights soaring over the 10 percent daily limit as the government sent strong signals to rescue the market after it fell nearly 50 percent since its peak last October.

The benchmark Shanghai Composite Index, which covers A and B shares, was up 239.07 points to 3,517.40. The key index hit an intraday high of 3,593.20.

The decision to cut the tax to 0.1 percent from 0.3 percent was approved by the State Council, or Cabinet, Xinhua news agency reported late Wednesday.

"The lowering of the stamp duty... is among the most aggressive steps the government could have taken to improve sentiment," said Jing Ulrich, a Hong Kong-based analyst with JPMorgan Securities.

Analysts said the move would give the market a short-term boost, because sentiment, hit by sharp falls, was heavily dependent on supportive government measures.

"After the market hitting a sensitive point around 3,000, investors are expecting strong support from the government, and a stamp duty cut is exactly what they wanted," said Yu Zuojie, an analyst at Shanghai Securities.

The Shanghai A-share index gained 250.75 points or 7.29 percent to 3,690.60 points, while the Shenzhen A-share index was up 72.71 points or 7.22 percent to 1,079.21.