The Agriculture Minister, Nick Brown, instead listed tougher measures to check hygiene standards of raw cows' drinking milk in an attempt to quell fears of health experts who believe it could be harmful.
Mr Brown said: "We have decided not to stop the drink's sale in England and Wales. However, we intend to introduce tighter checks to benefit consumers who choose to drink raw cows' drinking milk."
The measures include increasing the frequency of tests of samples and production premises, which will begin immediately.
Producers will continue to pay for official checks while the retailers will have to give greater prominence to the statutory label warning that the milk may contain organisms harmful to health.
Labels must also include the Chief Medical Officer's advice that children, pregnant women, elderly people and those who are unwell or have a chronic illness should not drink the milk.
The announcement follows more than a year of public consultation on proposals to ban green-top milk, which were recommended by the Advisory Committee on the Microbiological Safety of Food after surveys found food poisoning pathogens and evidence of faecal contamination.
The sale of the drink has been banned in Scotland since 1983 and will remain unavailable.
The Chartered Institute of Environmental Health said the U-turn was "inexplicable". It had assumed the Government would follow the advice of its advisory committee and introduce a ban, particularly in light of the threat posed by emerging pathogens such as the deadly E. coli 0157.
The Consumers' Association, however, welcomed the Government's decision.
A spokesman said: "While there are valid concerns about the regular consumption of raw milk we believe these should be tackled by enforcing existing safety controls, clear labelling and making information about potential risks available for those choosing to drink it."Reuse content