Alistair Darling, the Secretary of State for Social Security, was forced to act after the European court decided that John Taylor, 64, of Norton, North Yorkshire, was a victim of unlawful sex discrimination. He had not been not entitled to the payment until he qualified for a state pension at 65, paid to women at 60.
The court ruling means the Government will have to extend the winter- fuel payments immediately to all men over 60. Campaigners said that they would increase the pressure for the equalisation of the state pension for men and women at 60.
Downing Street said that it could cost an estimated pounds 125m in back payments, stretching back two years to the time the winter-fuel allowance was brought in by Labour.
A publicity campaign is to be mounted to identify the estimated 1.5 million men who will be eligible for the extra cash. Ministers believe that could cost the taxpayer pounds 25m in administrative costs. The annual cost of extending the payments to all men over 60 will be pounds 85m.
The winter-fuel payments were pounds 20 when they were introduced in 1997, but increased to pounds 50 a year later. Pensioners are entitled to pounds 100 per household for winter fuel bills; if there are two eligible pensioners, the payment is still limited to pounds 100.
Officials were left scratching their heads over how to fulfil the court ruling. "Most of these men are not on our records," one Whitehall source said. "They don't show up if they are not unemployed and not drawing a state pension. It may look simple but it's very complicated."
Mr Taylor, who was supported by the civil-rights organisation Liberty, said: "I've been fighting for two years for this and I'm very pleased. All the over-sixties should receive winter-fuel payments now, but although we've won the battle we have not yet won the war.
"This is part of a major campaign and our ultimate objective is to achieve equal state pension age for men and women. This is a great Christmas present for all the over-sixties and a brilliant start to the millennium."
Mr Taylor, whose bill for gas central heating and electricity at his three-bedroom house is about pounds 500 a year, had sought judicial review.
Help the Aged said: "We believe pensioners' lives could be better improved by a higher state pension and better support insulating cold homes."
Liberty's legal officer Di Luping, who is Mr Taylor's solicitor, said: "It is a milestone in the fight for true equality between men and women. However, this is just one state benefit and there are others that should be equally available at age 60 for both sexes."