The current Dalai Lama, who turns 90 this week, has lived in exile in India since Chinese troops crushed an uprising in the Tibetan capital Lhasa in 1959.
He confirmed on Wednesday that the 600-year-old institution would continue, soothing the concerns of many Tibetans who feared a future without a spiritual and political focal point.
China, which views the current Dalai Lama as a separatist, countered that Beijing has the final say on who the successor will be.
"The reincarnation of the Dalai Lama, the Panchen Lama and other great Buddhist figures must be chosen by drawing lots from a golden urn, and approved by the central government," foreign ministry spokeswoman Mao Ning told a regular news briefing, referring to a method introduced by a Qing dynasty emperor in the 18th century.
"The Chinese government implements a policy of freedom of religious belief, but there are regulations on religious affairs and methods for managing the reincarnation of Tibetan living Buddhas," Mao said.
Tenzin Gyatso -- the 14th Dalai Lama -- was 23 when he fled Lhasa in fear for his life.
The Nobel Peace Prize winner has since become the global face of the Tibetan push to assert their cultural identity, as well as a powerful symbol of peace and non-violence.
Mao said on Wednesday that Beijing's policy of making religion more Chinese "is not its restriction. The survival and development of any religion lies in adapting to the country's social environment and cultural traditions".
"Tibetan Buddhism was born in China and carries Chinese characteristics," she said.
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