The £5 billion national identity card scheme will be scrapped within 100 days, it was announced today.
Abolishing the cards and associated register will be the first piece of legislation introduced to Parliament by the new Government.
Home Secretary Theresa May said the Identity Documents Bill, published today, will invalidate all existing cards.
Card holders, who paid £30, will no longer be able to use them to prove their identity or travel within Europe.
The role of the Identity Commissioner, created in an effort to prevent data blunders and leaks, will be terminated.
The Government claimed the move will save £86 million over four years and avoid £800 million in costs that would have been covered by fees.
Mrs May said the Government intends to have the Bill passed and enacted before the August Parliamentary recess.
She said: "This Bill is the first step of many that this Government is taking to reduce the control of the State over decent, law-abiding people and hand power back to them.
"With swift Parliamentary approval, we aim to consign identity cards and the intrusive ID card scheme to history within 100 days."
Abolishing the identity cards system was a key manifesto pledge by both Tory and Liberal Democrat leaders.
The Home Office began advising people not to apply for new cards within hours of the coalition Government's birth earlier this month.
Deputy Prime Minister Nick Clegg said: "The wasteful, bureaucratic and intrusive ID card system represents everything that has been wrong with government in recent years."
The Prime Minister's official spokesman confirmed there would be no compensation for people who have already paid for ID cards in pilot schemes.
The spokesman said: "The number of people who have been issued with ID cards is relatively small.
"We have taken the decision not to refund them. Most of these people would have been aware that there was a potential for this scheme to be discontinued because it has been a long-standing commitment of the Prime Minister."
Mrs May said holders, overseas governments and border officials at ports and airports will be informed of the change as soon as the Bill gains Royal Assent.
Speaking at the Home Office, she added that the move was a "symbolic moment" to redress the balance between civil liberties and national security.
Mrs May said the Bill was a "first step" and accused New Labour of "trampling over ancient liberties" while failing to ensure the safety of the public.
Immigration Minister Damian Green said when the Tories were in opposition they warned anyone buying an identity card it would be merely a "souvenir".
Mr Clegg said: "The wasteful, bureaucratic and intrusive ID card scheme represents everything that has been wrong with government in recent years.
"By taking swift action to scrap it, we are making it clear that this Government won't sacrifice people's liberty for the sake of ministers' pet projects.
"Cancelling the scheme and abolishing the National Identity Register is a major step in dismantling the surveillance state - but ID cards are just the tip of the iceberg.
"Today marks the start of a series of radical reforms to restore hard-won British freedoms."
The Government still faces questions over the total cost of scrapping the sprawling project in terms of money, jobs and disruption to the passport system.
It faces a bill of £5 million this year alone to terminate contracts with suppliers, write off equipment, pay off staff and destroy sensitive information.
Up to 60 people based in Durham were told yesterday their short-term contracts will not be renewed.
James Hall, who heads the Identity and Passport Service, said £257 million has already been spent, which includes some of the cost of biometric passports.
He said the total termination costs will be below £100 million and four multimillion-pound contracts with private sector companies are tied to the scheme.
Mr Hall said one of these will be cancelled, two scaled back and one left untouched as it involves the production of passports.
He said negotiations have already begun over the cost of scrapping or changing the contracts but declined to discuss progress.
Mr Green said the £30 cost was effectively a "tax" on every Briton and defended the claim that abolishing the cards will save £800 million over 10 years.
But he ruled out refunding the fee to around 15,000 people, including foreign nationals and airport workers, who bought cards at a total cost of some £450,000.
Mrs May said a further £134 million will be saved by scrapping biometric passports and associated computer systems.
She said every card-holder will be sent a letter warning them that they will soon be invalid.
Mrs May said she is "confident" there will be net savings and that full figures will be made public once negotiations end.
She said: "In any case, regardless of savings, this is something we wanted to be doing. We have been absolutely clear we did not want this identity card scheme."
Shami Chakrabarti, of Liberty, said: "Liberty thanks the Government for the bonfire of the ID cards and the junking of the National Identity Register.
"We have spent many years arguing that this grand folly would cost our freedom, privacy and race relations dearly and the public agreed. We hope that scrapping ID cards for foreign nationals will soon follow.
"Passports and visas are appropriate for immigration control - ID cards are even more divisive when only one group in society is required to hold them."
Brendan Barber, of the TUC, said: "Scrapping identity cards is an important sign that the new Government is committed to safeguarding civil liberties.
"With public spending under close scrutiny, identity cards were a costly folly that would have done nothing in reality to assist the fight against terrorism and would have been an unwelcome intrusion into people's personal liberty, with a likely disproportionate impact on black and ethnic minority citizens."
Alex Deane, of pressure group Big Brother Watch, said: "The ID card scheme's demise is one in the eye for the authoritarian busybodies.
"Most people hated them and they were an intrusive waste of money.
"Now we must ensure that the construction of a database state is stopped - ID cards were the most notorious symbol of a larger surveillance and monitoring programme, much of which is still with us."Reuse content