Britain's biggest supermarket chain and the world's largest food manufacturer unveiled their new policy just hours after Jack Cunningham, the Minister for the Cabinet Office, made a staunch defence of the benefits of GM crops and foods.
Tesco revealed it was working with Greenpeace to remove modified ingredients from its own meals and would label clearly all other products that contained them.
The company's decision follows pressure from customers and criticism from environmentalists that it was the only one of the big chains to refuse to respond to public concern.
Tesco, the market leader with a turnover of pounds 18.5bn, joins Safeway, Sainsbury's, Iceland, Marks and Spencer and Waitrose in seeking GM-free products and boosting its organic range.
More than 150 of Tesco's its 20,000 own-label products contain modified soya and maize and the chain has agreed to work with Greenpeace in a task force to find reliable sources of GM-free ingredients.
John Longworth, Tesco trading law and technical director, said customers believed GM products offered no new benefits. "We will remove GM ingredients where we can and label where we can't. In the short and medium term I expect the number of products containing GM ingredients to decline steadily, quite possibly to zero."
Peter Melchett, executive director of Greenpeace UK, said that the spotlight was now on Nestle to phase out the ingredients.
Greenpeace said it was "delighted" that Unilever, owner of Birds Eye Walls and one of the most popular manufacturers of ready meals, had taken its decision.
Mr Cunningham had told MPs the GM foods and crops were now "a reality" and helped to boost Britain's pounds 70bn a year biotechnology industry.
Mr Cunningham, who chairs the Cabinet committee set up by Tony Blair to co-ordinate Government policy on GM issues, told the environmental audit select committee that "media hysteria" had skewed public debate to date.
"Some aspects of the public debate have been ill-informed, often fuelled by a barrage of media hysteria," he said.
"About 4.5 million hectares of land are in cultivation in the UK. GM crops have grown for 19 years in North America with almost no effects on biodiversity."
Mr Cunningham did confirm that the Chief Medical Officer and the Chief Scientific Officer had been commissioned to look into the health and safety aspects of GM foods and their report would be made publicly available in the next few weeks.