Hong Kong's leader on Wednesday bowed to a key demand of pro-democracy protesters following three months of unrest, announcing the withdrawal of a loathed extradition bill, but activists vowed to press on with their campaign.

Millions of people have taken to Hong Kong's streets since June in the biggest challenge to China's rule of semi-autonomous Hong Kong since its handover from the British in 1997.

After refusing for months to permanently withdraw the bill, which aimed to allow extradition of criminal suspects to mainland China, chief executive Carrie Lam finally conceded as she called for calm and an end to violent protests.

"The government will formally withdraw the bill in order to fully allay public concerns," she said.

Initial reports in the local media flagging Lam's announcement raised hopes that giving in to the extradition demand could help end the crisis. Hong Kong's stock market climbed nearly four percent in afternoon trade after the reports emerged.

But those hopes were quickly tempered, with pro-democracy activists voicing anger and determination to press on with their broader democracy campaign.

"Too little, too late," said Joshua Wong, a prominent activist who was arrested late last week as part of a police swoop on leading pro-democracy figures.

"We urge the world too to (be) alert (to) this tactic and not to be deceived by HK and Beijing Govt. They have conceded nothing in fact, and a full-scale clampdown is on the way."

The protests were sparked by opposition to Lam's extradition legislation, which was seen as another erosion of the liberties enjoyed in Hong Kong compared with authoritarian mainland China.