Livelihood diversification is an important means of livelihood by which rural households can reduce the adverse impact of risks and increase household income.Livelihood diversification can help raise the income level of the poor and lift them out of poverty.However,whether livelihood diversification can narrow the income gap between different income classes depends on its impact on the overall rural household income distribution in reality.To fill the research gap,we adopt the recentered influence functions (RIFs) and unconditional quantile regression (UQR) to empirically analyze the impact of livelihood diversification on rural household income inequality,using data from the national household survey.Our study finds that diversification plays a role in adjusting unequal distribution of income,and effectively reduces income inequality.Specifically,livelihood diversification is found to have propoor potentials,which plays a significant role in narrowing income gap between lower-income and middle-income households and expanding middle-income groups.The decomposition of income inequality by income sources shows that nonfarm wage accounts for the largest proportion of overall income inequality,and the increase of nonfarm wage helps to reduce inequality.In particular,1% increase in nonfarm wage leads to 4% decrease in income inequality for households with diversified income portfolios.Moreover,a regional heterogeneity analysis shows that livelihoods diversification can significantly reduce income inequality in the western and central rural areas,but the impact on the eastern areas is not significant.Based on the above results,livelihood diversification is important for promoting better governance in reducing relative poverty and facilitating lower-income households moving into middleincome class.