According to the 1878 Congress of Berlin, Bosnia and Herzegovina passed under Austro-Hungarian occupation and administration. Austro-Hungary improved the economic conditions in the country but could not stop the rising Serb nationalism which grew more when Bosnia and Herzegovina were completely annexed in 1908.

The Austro-Hungarian occupying forces succeeded to quickly stop the armed resistance between the local people. However, tension still existed in some parts of the country, especially in Herzegovina, and, as a consequence, a mass migration of mainly Muslim dissidents occurred. A state of relative stability was established and the Austro-Hungarian authorities had the possibility to deal with social and administrative reforms, intending to turn Bosnia and Herzegovina into a ‘model colony’, thus making it a province with a stable political system which would be able to stop the rising South Slav nationalism. The Habsburg rule contributed to systemise the laws and to introduce new political practices, as well provide modernisation of the region.

The decision, taken in Vienna, to fully annex Bosnia in 1908 led to a series of events that contributed to the First Balkan War of 1912–13. In June 1914, the Austrian Archduke Franz Ferdinand was assassinated in the capital of Bosnia, Sarajevo, by a Serb revolutionary Gavrilo Princip, in turn leading to the outbreak of World War I. Some Bosnians participated in the war, fighting for different countries, but as a whole, Bosnia and Herzegovina was untouched by the war. At the end of the war, with approval of Europe’s Great Powers (Russia, Great Britain, France, Austria-Hungary, Italy and Germany), Serbia annexed Bosnia and included it in the new ‘Kingdom of Serbs, Croats and Slovenes’. The new country was renamed ‘Yugoslavia’ in 1929. During this period, two major trends dominated political life in Bosnia: social and economic unrest against the redistribution of the property and the formation of different political parties which entered in various coalitions and alliances, with the parties seated in other regions of Yugoslavia.