Rural revitalization hinges on the rural agriculture–industry–services (AIS) integration and urban-rural coordinated development, with improved market-oriented allocation of rural factors serving as a key economic lever for advancing both. Based on national panel data from 2009 to 2022, our analysis suggests that rural AIS integration exerts a positive income-increasing effect on rural residents. Further quantile regression reveals that rural AIS integration exhibits a stronger positive association with farmers’ income growth at higher income quantiles. Both the dynamic System GMM and the difference GMM indicate that the rural AIS integration can narrow the urban-rural income gap. Non-farm employment plays a partial mediating role in the impact of rural AIS integration on reducing the income gap. The threshold model test results reveal that the income-increasing effect of the rural AIS integration showed an inverted U-shaped marginal convergence trend with the increase of urbanization rate. Therefore, deepening the reform of the rural land system, exploring multifunctional agriculture for higher non-farm employment, enriching the financial and fiscal support, and advancing phased coordination between urbanization and rural AIS integration are appropriate choices to promote the rural AIS integration, which aims to narrow the urban-rural income gap by creating new pathways to increase rural residents’ property income, operating income and wage income. The findings enrich the theoretical foundation for understanding how the rural AIS integration boosts residents’ income and narrows the urban-rural gap, with two specific contributions: first, clarifying that its marginal income-increasing effect is more pronounced across higher quantiles of rural income distribution; second, deriving policy implications for leveraging urbanization’s non-linear impact to strengthen this effect.

During China’s process of industrialization and urbanization, the urban-rural dualistic segmentation results in lagging cultivation of rural factor market and asymmetric evolution of urban-rural factor markets. The empirical study demonstrates that the urban-rural factor mobility contributes to income growth while narrowing the income gap. And this income effect of factor mobility exhibits an accelerating pattern. Heterogeneity examination further reveals that the income-enhancing effect is more pronounced in eastern China relative to other regions. However, in regions with a higher industrial structure upgrading index, its gap-reducing effect is relatively weaker. Additionally, the urban-rural dualistic economic structure functions as a mediator in the income effect of factor mobility. Land transfer rate exhibits a threshold effect. Specifically, as the transfer rate increases, the income-boosting effect of factor mobility exhibits a marginally increasing trend. Therefore, this paper proposes a framework of “institutional empowerment ─ rights reinforcement ─ market-driven value creation”. Centered on rural land property rights reform as the catalyst, this approach takes the attraction of urban and rural talent as the endogenous driver, while leveraging social capital and government agricultural subsidies as exogenous drivers. This streamlined policy pathway theoretically underlines the central mechanism of rural land system reform in guiding other factors into rural areas, and in practice highlights the irreplaceability of market mechanisms in allocating various rural factors. Its goals are to realize the agricultural value appreciation and facilitate coordinated urban-rural development.