The 253-km railway line links Tibet's provincial capital Lhasa with Xigaze, the second-largest city in Tibet and also the traditional seat of the pro-Beijing Panchen Lama -- stated to be second important Monk in Tibetan hierarchy.
The new line near the Indian border in Sikkim is also close to China's border with Nepal and Bhutan.
It reduces the travel time between Lhasa and Xigaze from the current four hours by highway to around two hours, state-run Xinhua news agency reported.
It is the second railway line in Tibet and an extension of the Qinghai-Tibet railway, the world's highest rail link connecting China's mainland with Tibet.
Construction of the railway line started in 2010 with an investment of 13.28 billion yuan (USD 2.16 billion).
In addition to this, China last month unveiled plans to construct a new crucial railway line in Tibet close to Arunachal Pradesh, which Chinese analysts say could act as a "bargaining chip" during the border talks with India.
The construction of another railway line linking Lhasa to Nyingchi in the east is also expected to start soon, recent official media report said.
Nyingchi is located right close to Arunachal, the nearest area to the border. China claims Arunachal as part of Tibet.
The railway expansion will connect, Nepal, Bhutan and India by 2020, the report said.
The growing Chinese railway network in Tibet is likely to leverage Beijing's claim over the disputed border region, experts claim.
It would also help Chinese military strategically by reducing the travel time to the remote southern Tibetan region, they add.
The construction of a railway connecting Xigaze with Gyirong county, close to Nepal, will be constructed under the five year plan ending 2020, an official recently said.
Gyirong county has a checkpoint connecting Nepal and Yatung county, close to Indian border near Sikkim and Bhutan, a trade centre bordering India and Bhutan.