The maximum stake on a fixed-odds betting terminal (FOBT) is to be reduced from £100 to £2, it has been announced.
The move follows a lengthy consultation about the machines - branded the "crack cocaine of gambling" by critics - and will come as a major blow to bookmakers, who argued that a dramatic cut would lead to job losses.
The Government said that the change was designed to reduce the potential for large losses and cut the risk of harm to both players and the wider community.
But leading north west bookmaker Betfred has predicted 4,500 jobs will be cut in the industry with the move.
Culture Secretary Matt Hancock said: "When faced with the choice of halfway measures or doing everything we can to protect vulnerable people, we have chosen to take a stand.
"These machines are a social blight and prey on some of the most vulnerable in society, and we are determined to put a stop to it and build a fairer society for all."
The announcement was made by sports minister Tracy Crouch, who said: "Problem gambling can devastate individuals' lives, families and communities.
"It is right that we take decisive action now to ensure a responsible gambling industry that protects the most vulnerable in our society. By reducing FOBT stakes to £2 we can help stop extreme losses by those who can least afford it.
"While we want a healthy gambling industry that contributes to the economy, we also need one that does all it can to protect players.
"We are increasing protections around online gambling, doing more on research, education and treatment of problem gambling and ensuring tighter rules around gambling advertising.
"We will work with the industry on the impact of these changes and are confident that this innovative sector will step up and help achieve this balance."
Other measures announced by the Government include:
- The Gambling Commission to toughen up protections around online gambling including stronger age verification rules and proposals for customer spending limits;
- A multimillion-pound advertising campaign promoting responsible gambling;
- Responsible gambling messages to appear for the duration of all TV adverts;
- A Public Health England review of the public health harms of gambling;
- A review of age limits for National Lottery games at the time of the next licence competition.
Labour's deputy leader Tom Watson told BBC Radio 4's Today programme he was "absolutely delighted" by the decision, which he said would "help alleviate some of the terrible misery caused by problem gambling in Britain".
Mr Watson said he hoped job losses could be avoided.
"The great tragedy of this is that for five years now, pretty much everyone in Westminster, Whitehall and in the country has known that these machines have had a very detrimental effect in communities up and down the land and the bookmakers have chosen to take a defiant approach and try to face down Parliament with a very aggressive campaign," he said.
"The bookmakers themselves many years ago should have been diversifying, should have been investing in horse-racing, should have realised the harm done by these machines. They've only got themselves to blame when the Government has listened to public opinion.
"They've really boxed themselves into a corner, but I would hope that now that we've got this decision, the bookmaking companies will be able to make sure there is investment in other forms of recreational gambling that don't have such addictive qualities."
The chief executive of amusement machine industry trade body Bacta, John White, said: "We warmly welcome this announcement.
"A stake reduction to £2 has long been needed to protect consumers from the harm caused by FOBTs.
"This is a decision that puts player protection first, and will allow the gambling industry as a whole to move forwards and create a safer, more socially responsible environment for consumers.
"It is a testament to the wide-ranging campaign for stake reduction from concerned individuals and organisations across politics, public health and the wider gaming sector. The Government has made the right decision and it now needs to be implemented without delay."
The Bishop of St Albans, Alan Smith - who played a leading role on behalf of the Church of England in the campaign to cut the maximum stake on FOBTs - welcomed the decision.
He said: "Fixed-odds betting terminals are a scourge on high streets that have taken advantage of the vulnerable for too long.
"I am very glad the Government agrees that a £2 stake is an essential part of the solution.
"Of course, there is more work to be done, but the Government has made the right decision.
"I would like to thank the Prime Minister and her Government, particularly Minister Tracey Crouch MP and Secretary of State Matt Hancock MP for their admirable moral leadership."