Following an unprecedented "pause" in legislation prompted by unease among health professionals and Liberal Democrat MPs, Health Secretary Andrew Lansley's proposals to extend competition in health provision have been significantly scaled back.
Prime Minister David Cameron said "we have listened, we have learned and we are improving our plans".
But Labour accused the Government of wasting billions of pounds by pressing ahead with an unnecessary reorganisation at a time when waiting lists are rising.
Shadow health secretary John Healey said the rewriting of the Health and Social Care Bill was a "humiliation" for Mr Lansley and called on him to apologise to patients and NHS staff.
The Health Secretary - who faced jeers and laughter from the Labour benches as he set out the revised plans to the House of Commons - insisted that the Government's decision to commission the NHS Future Forum to reassess its plans "demonstrated our willingness to listen and to improve our plans".
He said the amended Bill, which will be sent back to committee stage in the Commons with the aim of becoming law by next spring, contained "big changes" but did not abandon the principles of reform in his original plans.
Key changes, detailed by Mr Cameron, Mr Lansley and Deputy Prime Minister Nick Clegg during a visit to Guy's Hospital in London, include:
:: Nurses and consultants to be included on the boards of new GP groups responsible for commissioning healthcare services;
:: Stronger safeguards against a "market free-for-all", with the regulator Monitor required to protect patient interests and not to promote competition as an end in itself;
:: Additional safeguards against privatisation and to prevent private companies "cherry-picking" profitable NHS business;
:: Dropping the 2013 deadline for the introduction of commissioning groups, which will only become operative "when they are ready".
Mr Cameron said he now wanted to take the reforms forward in a "spirit of unity" with NHS staff.
"The fundamentals of our plans - more control for patients, more power to doctors and nurses, and less bureaucracy in the NHS - are as strong today as they have ever been," he said.
"But the detail of how we are going to make this all work has really changed as a direct result of this consultation."
Mr Clegg said the Government was making it clear that it was saying "no" to the sort of "free market dogma that can fragment the NHS".
He stressed that the reforms would be introduced at the "right pace - evolution, not revolution".
"Reforming an institution like that takes time. We have to be careful and considered. It's too important to get this wrong," said the Liberal Democrat leader.
Liberal Democrats are claiming the changes as an indication of the influence they wield within the coalition Government, with former leader Lord Ashdown saying Mr Clegg had "played a blinder" on the issue.
Lib Dem health minister Paul Burstow told BBC Radio 4's PM: "We have put competition back in its box."
But the claims were met with scorn from Conservative backbenchers.
Former minister John Redwood said: "I think the Liberal Democrats are quite wrong to claim this a victory.
"It wasn't the Liberal Democrats producing this report and it's an act of the collective Government producing these proposals."
The legislation exposed tensions within the coalition - with the Lib Dem spring conference voting against the plan to the fury of many Tory MPs, who broadly backed the reforms.
The Government was forced to take the unusual step of "pausing" the Bill and appointing the NHS Future Forum to come up with changes to allay staff concerns in a report, published yesterday.
Mr Cameron said it was "the whole Government, the whole Cabinet, the whole coalition" which had put forward the reform proposals and then accepted the need for a rethink.
"We are all responsible for this. I am every bit as responsible as Andrew Lansley for the fact that we decided we could improve on what we had already put forward," said the PM.
Labour leader Ed Miliband called for ministers to "go back to the drawing board", warning that their plans still involve "a bureaucratic reorganisation that's going to waste billions of pounds - money that should have been spent on patient care at a time when the NHS doesn't have huge amounts of money to spend".
Mr Healey told the Commons that the Health Secretary had humiliatingly had health policy "taken out of his hands".
But Mr Lansley dismissed his attack as "sheer opportunism", telling MPs: "It will come back to haunt him because the NHS is going to benefit from the changes we are proposing today. The NHS is going to take ownership of its own service to a greater extent."
The revised bill was denounced as "a recipe for privatisation" by the general secretary of the Unison union, Dave Prentis, who said it would "pave the way for private companies to grab any part of the NHS where they think they can turn a profit".
David Worskett, director of the NHS Partners Network, said independent healthcare providers were "disappointed" by the Government's failure to show whole-hearted commitment to the sector.
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