Michael Gove has insisted that England already has a two-tier education system as he defended plans to axe GCSEs and bring back O-levels.
Many top schools have already ditched the exams in favour of "more rigorous" qualifications such as international GCSEs, the Education Secretary claimed.
Under the most radical changes to the exams system for 30 years, GCSEs would be replaced by O-level exams in traditional academic subjects such as English, maths, the humanities and science.
It would also see less-able pupils taking simpler qualifications similar to old-style CSEs and the national curriculum for secondary school abolished.
But school leaders warned that the move, which they said is a "bombshell", risks "labelling teenagers as failures". It could lead to a two-tier system which writes off part of the population, according to headteachers' unions.
Answering an urgent question in the Commons from shadow schools minister Kevin Brennan, Mr Gove said: "The truth is we have a two-tier system in education in this country. Some of the most impressive schools have already left GCSEs behind and opted for more rigorous qualifications like IGCSEs.
"While there were undoubtedly improvements in our schools and by our teachers over the course of the last 20 years, those improvements were not sufficient to ensure that we kept pace with other jurisdictions."
Under the proposals, contained in documents leaked to the Daily Mail newspaper, pupils would begin studying "explicitly harder" exams in traditional academic subjects such as English, maths, history, modern languages and the sciences from 2014, with exams taken for the first time in 2016.
Papers would be set by a single exam board in order to provide a "gold standard" test across England, the documents said.
It would mean that schoolchildren currently in Year 8, aged 12 and 13, would be the last to take GCSEs.
Less-able pupils will sit simpler examinations similar to the old CSEs. They will include simpler tests in English and maths in order to provide them with "worthwhile" qualifications.
Mr Brennan told MPs: "GCSEs may well need improving, but a two-tier exam system which divides children into winners and losers at 14 is not the answer."
Mr Gove and his ministers are in favour of "going back to the future", he claimed.
"They want to bring back a two-tier exam system designed in the 1950s which will separate children and close off opportunity."
He said the key to improving literacy and numeracy was to raise teaching quality across the board.
The Education Secretary said that the Government would be issuing a consultation paper on the reforms shortly.
Brian Lightman, general secretary of the Association of School and College Leaders (ASCL), suggested that an O-level system was inappropriate for today's education system.
"O-levels were an examination that existed for a small proportion of the population, that was part of the preparation for university," he said.
"It was an academic qualification and at the time when O-levels existed, vast numbers of young people left either with no qualifications or ones that employers regarded as inferior. The last thing we want to do, when we are ambitious for our education service, is to create a two-tier system.
"It does risk labelling teenagers as failures.
"In recent years we have done a lot to motivate children, to improve attendance, reduced disengagement and truancy, and this is key to the very real improvements that have taken place in schools."
Russell Hobby, general secretary of the National Association of Head Teachers (NAHT), said: "The return to a two-tier system, CSEs and O-levels, implicitly labels some children as less capable."
It is understood that ministers believe that teenagers have been encouraged to think that a D, E, F or G grade at GCSE is a pass, when it is seen by many as a fail.
Mr Hobby said people are aware that getting a D or E is not as good, but that GCSEs were designed to cover the full ability range.
"It gave people the chance to do better than anyone expected," he said.
In the past, people who did CSEs and did well at them wished that they had sat O-levels, Mr Hobby said.
The idea of a golden age in the 1950s and 1960s with everybody leaving school with qualifications simply was not true.
"It just wrote off large chunks of the population," he said.
"The idea this once worked is a myth."
Mr Hobby said introducing single exam boards for qualifications was a sensible move because it reduces the competition, adding that the national curriculum in secondary schools is fast becoming an irrelevance.
Around half of secondaries are now academies which do not have to stick to the national curriculum.
The plans to overhaul the exams system come as teenagers across the country are sitting their GCSEs.
Adam Marshall, director of policy at the British Chamber of Commerce, said: "Businesses have steadily lost confidence in the ability of the education system to deliver young people who are ready for the world of work.
"There are lots of companies out there who are confused by ever-changing qualifications and uncertain as to whether a young person is ready to come into the world of work and take up a job with them.
"It's not actually the changing of the system that matters, it's the outcome that matters.
"If this is a route that leads more employers to say more young people are ready for the world of work, then it will have been successful."
Steve Radley, director of policy at EEF, the manufacturers' organisation, said: "Employers will welcome any efforts to raise the standards in the core subjects of English, science and maths, which many companies say are currently lacking. However, they will want to know more about these proposed changes before passing judgment.
"In particular, we must avoid anything that devalues the status of vocational education, especially at a time when so much effort is being spent on putting apprenticeships on a par with the academic route."
A senior Liberal Democrat source said they had no prior knowledge of the proposals, and they would not go ahead without their approval.
"We learned about it by reading the Daily Mail," the source said.
"What is reported looks like a huge upheaval for very modest gains.
"The main problem we have with this is it looks like it sets far too low an aspiration for our young people.
"Nick Clegg and the Lib Dems do not want to return to the divisions we saw in the 1950s."
The source said the party would not accept a policy which would leave "a large number of children behind at a relatively young age".
"We are very, very hostile to something that looks like it is going to return to the two-tier system of the past," they added.