The decision is a victory for English teachers who campaigned fiercely against the tests, introduced by the previous government, and threatened a boycott if they remained unchanged.
The first pilots were held last term and Conservative ministers intended all 14-year-olds to take separate grammar tests from next year.
Gillian Shephard, the former secretary of state for education, had insisted the grammar tests were vital because of complaints from employers and the public about sloppy language.
Tory education ministers waged a long-running battle with teachers who opposed English tests for 14-year-olds when they were introduced four years ago.
A review of the national curriculum and testing to begin next year will look at English teachers' objections to how both Shakespeare and reading and writing are tested at the age of 14.
Teachers say that Shakespeare should be tested through coursework marked by teachers, not by an end-of-course exam, and that grammar should be tested through pupils' writing, not by separate tests.
Baroness Blackstone, the education minister, announced that the Conservative plans for mental arithmetic tests at ages 11 and 14 would go ahead but there would be further English pilot tests for 14-year-olds including grammar, spelling and punctuation.
She said: "These tough new tests will be a challenge for teachers and pupils which we are confident they can meet. The changes will help us to continue our drive to raise school standards."
A spokeswoman for the Department for Education said that the pilot tests had thrown up some problems so ministers had decided to extend the pilot.
The decision was taken on the advice of the School Curriculum and Assessment Authority.
In a letter to the department, the authority said: "The response from schools involved in the pilot and other evidence indicates a general preference for the assessment of these aspects of English to be part of a broader assessment of reading and writing rather than through separate tests."
Authority officials were also concerned that a compulsory grammar test might be unfair when a survey showed that many English teachers were not confident about teaching sentence structure in grammar.
Bethan Marshall, of the National Association for the Teaching of English, welcomed the Government's decision. "The tests have been a complete fiasco in two of the last three years," she said. "They are not a true test of pupils' ability and disadvantage bright pupils."
Ministers also announced a review of national education and training targets after they received a warning that two of the present targets are too ambitious.
Under the targets, adopted by the previous government, three-quarters of 19-year-olds and 35 per cent of 21-year-olds were to reach the required level in literacy, numeracy and information technology by 2000.
The body which sets national targets says in its annual report that Britain will need longer than expected to ensure that these two targets are achieved.
Current figures for the two age groups are 9.7 and 0.4 per cent. The report says IT skills present a particular problem.
The National Advisory Council for Education and Training Targets also says that the target for 60 per cent of the workforce to have two A-levels or the vocational equivalent will have to be postponed.
The advisory council believes that other targets - 85 per cent of 19- year-olds to achieve five good GCSEs or the vocational equivalent, and 60 per cent of 21-year-olds to have two A-levels or the vocational equivalent by 2000 - are achievable.
However, the report says that the figures are "challenging" and "the right action must be taken urgently to raise attainment levels further".
Baroness Blackstone said: "We have already set targets for improvements in literacy and numeracy for 11-year-olds - we now need to identify targets for the other main areas of education and skills attainment where we all feel we need to do better."
Philip Chorley, the advisory council's director, said that good progress had been made towards the targets. "We are saying that the majority of the targets can be reached.
"We knew when we set them in spring 1995 that they were going to be challenging."Reuse content