Bahrain's Gulf Air and Qatar Airways have been awarded licences to operate domestic and international flights in Saudi Arabia.
They are the first foreign airlines to receive such a licence in the Gulf kingdom after a total of 14 airlines applied to General Authority of Civil Aviation (GACA).
The two winning companies will have to finalise the procedures to get licences in no more than six months, Bahrain Press Agency said.
Qatar Airways, Bahrain Air and Gulf Air were among the firms in pre-qualified consortia bidding for the licence.
Saudi Arabia, the biggest Arab economy with a population of over 27m, still has one of the smallest airline networks in the region relative to its size.
More than 54m passengers passed through Saudi Arabia's 27 airports last year, according to data from GACA, rising 13.6 percent from 2010.
Currently only two airlines - the national carrier Saudi Airlines and budget airline National Air Services (NAS) - service a domestic market of around 27 million people.
With a price cap on domestic flights, private airlines have struggled with their profit margins. In 2010, a third carrier, Sama Airlines, was forced to suspend its operations.
Saudi Airlines, which is undergoing a slow privatisation process, receives fuel at subsidised prices unlike private carriers, allowing it to offset the limits of the ticket cost ceiling.
In July, Qatar Airways said it was in talks with GACA about opportunities to invest in the Saudi aviation sector.