Deputy prime minister John Prescott set the date for the election and that of the 25-member assembly for the capital as he opened debate on the second reading of the Greater London Authority Bill.
The GLA will control a budget of several billion pounds, have strategic powers over transport and economic development and will oversee a new, accountable Metropolitan Police Authority.
The GLA would give power to the people of London, Mr Prescott said, 'stripping away the shadowy committees, the burgeoning bureaucracies and quangos created by our predecessors'.
'That, I'm afraid, is not this side of any election period.'
The mayor will be elected by the supplementary voting system of proportional representation, 14 of the 25 assembly members by the traditional first-past-the-post method and the remaining 11 by the additional member system.
A new London Development Agency would be appointed by and accountable to the mayor. He would also set London's overall planning strategy, to which individual boroughs would have to conform. Mr Prescott rejected a charge by Liberal Democrat MP Paul Burstow that it could lead to a conflict of interest.
He said the mayor would still be accountable to the assembly, and the environment secretary would retain the power to adjudicate in any planning dispute.
Under the Bill, the GLA will not be allowed to extend its powers by referendum. The mayor will be required to take questions from the assembly on a monthly basis in public, with ordinary Londoners being given a chance to put questions.
Shadow environment secretary Gillian Shephard said the Tories had deep concerns about what was essentially an experiment in government. She asked if anyone could remove the mayor and under what circumstances the mayor would be able to intervene in local planning decisions.
She also asked why the white paper, setting out the plans, suggested the arrangements would cost Londoners 3p a week, despite London School of Economics calculations that the figure would be 'a very great deal more'.