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When the Dalai Lama recognized a young boy in Tibet as the new Panchen Lama, the second highest in Tibetan Buddhism, in 1995, China detained the child and appointed its own candidate.
Last year, China's government claimed exclusive rights to approve all lamas' reincarnations.
The Dalai Lama has proposed several alternatives, including holding a referendum among the world's 13-14 million Tibetan Buddhists on whether he should be reincarnated at all.
"If the majority feels this institution has become irrelevant, then it will automatically cease," he told a news conference today.
If the majority wanted to continue the tradition, he said he would be re-incarnated as a young boy, or a girl. "Girls show more compassion," he said.
He also repeated that he could identify a reincarnation while he is still alive, even though no Dalai Lama has done so before.
Some Tibetans fear that this could leave him open to criticism from China – and pro-Beijing lamas in Tibet – that he was violating religious tradition for political reasons.
The regency proposal offers a possible compromise, allowing the Dalai Lama to select and groom his temporary successor, while adhering to Tibetan tradition.
He is also extremely close to the Karmapa, who is renowned inside and outside Tibet for his good looks and intelligence, as well as his dramatic escape to India.
The Dalai Lama praised the Karmapa at today's news conference and said he would play an important role after his death, without specifying what it would be.
In an audience with foreign visitors last week, the Karmapa said he was committed to his current position for the moment.
"There's no chance of me being a different person because I already have this role," he said, according to a transcript of the meeting.
The lama, who has met several Chinese leaders, including former President Jiang Zemin, did however say that that he hoped to engage more with China in the future. "If I get the chance, I want to do this," he said. "But it's difficult for me to connect with the outside world here."
The Karmapa, who visited the United States for the first time in May, said that he enjoyed rap music, but found it hard to dance in his monk's robes.
He cannot become the next Dalai Lama as he leads a different sect of Tibetan Buddhism. He could, however, act as a unifying figure to prevent the exiled community from fragmenting after the Dalai Lama's death.
"The Dalai Lama is definitely grooming him," said Kate Saunders, a spokeswoman for the International Campaign For Tibet, who has close contacts with Tibetan exile leaders. "It's like a father-son relationship."
Lhadon Tethong, the New York president of Students for a Free Tibet, said many young Tibetans would support the idea of the Karmapa becoming regent. "Almost every Tibetan has great respect for him, great reverence," she said. "He's very sharp and he's grown up under the Chinese system."
However, the Karmapa would be a controversial choice as he heads the Kagyu (Black Hat) sect while the Dalai Lama leads the Gelukpa (Yellow Hat) sect.
"There would be some resistance from the religious establishment," said Dr Sangay, the Harvard fellow.
Regents also have a controversial history in Tibet: the one who took over after the 13th Dalai Lama's death was replaced and died in jail after being accused of leading an uprising against his successor.
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