The Second Anglo-Chinese War (1856-58) arose out of disputes over the interpretation of the earlier treaties and over the boarding of the Arrow, a British lorcha (a vessel with a European hull and Chinese rig) by Chinese in search of suspected pirates. The Treaty of Tientsin (Tianjin) in 1858, which ended the war, gave the British the privilege of diplomatic representation in China. The first British envoy, Sir Frederick Bruce, who had been the first Colonial Secretary in Hong Kong, was fired on at Taku (Dagu) Bar on his way to Peking to present his credentials, and hostilities were renewed from 1859-60.

Troops serving on this second expedition camped on Kowloon Peninsula, as Hong Kong's earliest photographs show. Finding it healthy, they wished to retain it as a military cantonment, with the result that Sir Harry Parkes, Consul at Canton, secured from the Viceroy a lease of the peninsula as far north as Boundary Street, including Stonecutters Island. The Convention of Peking in 1860, which ended the hostilities, provided for its outright cession.

Other European countries and Japan subsequently demanded concessions from China, particularly after Germany, France and Russia rescued China from the worst consequences of its defeat by Japan in 1895. In the ensuing tension, Britain felt that the efficient defence of Hong Kong harbour demanded control of the land around it.

Under a convention signed in Peking on June 9, 1898, the New Territories — comprising the area north of Kowloon up to the Shum Chun (Shenzhen) River and 235 islands — was leased for 99 years. The move was directed against France and Russia, not against China, whose warships were allowed to use the wharf at Kowloon City. There, Chinese authority was permitted to continue 'except insofar as may be inconsistent with the military requirements for the defence of Hong Kong'. However, an order-in-council of December 27, 1899, revoked this clause and the British unilaterally took over Kowloon City. There was some opposition when the British took over the New Territories in April 1899, but this eventually dissipated. The area was declared to be part of the overall territory of Hong Kong but was administered separately from the urban area.