The Tiangong-2 blasted off just after 10:00 pm (1400 GMT) "in a cloud of smoke" from the Gobi desert, the official news agency Xinhua reported.
State television CCTV broadcast images of the Long March-2F rocket's engines igniting in tandem before slowly lifting into the air and exiting the Jiuquan Satellite Launch Centre, leaving a long trail of flames in its wake.
The 8.6 tonne Tinagong-2 -- or Heavenly Palace-2 -- will initially orbit at a height of around 380 kilometres (240 miles) above earth, Xinhua cited Wu Ping, deputy director of China 's manned space engineering office, as saying.
It will then move slightly higher to allow the Shenzhou-11 mission to transport two astronauts to the facility, where they will stay for 30 days.
Once inside Tiangong-2 , the two astronauts will carry out research projects related to in-orbit equipment repairs, aerospace medicine, space physics and biology, atomic space clocks and solar storm research.
"It has the basic technological capacity of a space station ," Zhou said.
China is pouring billions into its space programme and working to catch up with the US and Europe.
It hopes to have a crewed outpost by 2022.
Beijing sees its military-run space programme as symbolising the country's progress and a marker of its rising global stature.
The nation's first lunar rover was launched in late 2013, and while it was beset by mechanical troubles it far outlived its expected lifespan, finally shutting down only last month.
But for the most part China has so far replicated activities that the US and Soviet Union pioneered decades ago.
It announced in April it aims to send a spacecraft "around 2020" to orbit Mars, land and deploy a rover to explore the surface.