GP practices will be obliged to join forces to commission treatment directly under a reform blueprint published by Health Secretary Andrew Lansley.
They will be handed much of the multimillion-pound budget currently handled by primary care trusts (PCTs), which will be abolished along with strategic health authorities.
An independent NHS Commissioning Board will oversee the new regime, with local councils taking over the public health element of PCTs' work.
Under plans set out in a White Paper, the Government also promised to scrap "top-down" targets in favour of a regime based on clinical outcomes.
And patients will be handed more choice over how and where they are treated.
The document warned that NHS job losses were "inevitable" but said it was vital to switch cash from bureaucracy into frontline services.
Mr Lansley said: "The sick must not pay for the debt crisis left by the previous administration. But the NHS is a priority for reform too.
"Investment has not been matched by reform. So we will reform the NHS to use those resources more effectively for the benefit of patients."
Mr Lansley said the new structure would "put patients right at the heart of decisions made about their care (and) put clinicians in the driving seat on decisions about services".
Under the new model, consortia of GPs in England will be directly responsible for commissioning the "great majority" of NHS services for their patients.
Specialist commissioning will be carried out by the new board, which will also distribute funds to the consortia, which the Government wants to have in place by next year.
Mr Lansley said that all NHS trusts will become Foundation Trusts, giving more freedom from Whitehall control.
And he said he wanted to open up the NHS to "any willing provider" able to meet standards in what he said would be the "largest social enterprise sector in the world".
The Government is seeking to slash NHS management costs by 45% over four years, and the White Paper acknowledged that would mean job losses.
"Inevitably, as a result of the record debt, the NHS will employ fewer staff at the end of this Parliament," it said, suggesting staff would be more concentrated on the front line.
"This is a hard truth which any government would have to recognise," it said.
Mr Lansley told MPs the scale of the reforms was "challenging" but denied breaking a pre-election promise to spare the health service from further top-down reorganisations.
He said he was simply accelerating and building on work that was already going on
"As we empower the front line, so we must disempower the bureaucracy. So after a transitional period, we will phase out the top-down management hierarchy, including both strategic health authorities and primary care trusts."
But shadow health secretary Andy Burnham said 10 years of "painstaking work" to raise standards in the NHS had been "thrown in the air".
"It is a huge gamble with an NHS that is working well for patients," he said.
The coalition agreement had pledged to put a stop to top-down reorganisations of the NHS.
"What's happened since the publication of the agreement to justify a U-turn of such epic proportions?" he asked.
More details of the new commissioning system would be published "shortly", the Government said, as it consults on the changes ahead of legislation in the autumn.
The White Paper said consortia would have to include enough practices to manage the "financial risk" of controlling a share of around £70 billion of taxpayers' money.
They would be paid a "premium" for securing good health outcomes for patients and managing budgets well. But there would be no "bail-outs" for any bodies - including groups of GPs - "which overspend public budgets".
GPs might choose to "buy in" outside help from private firms or charities, the paper said - with some critics warning that could increase the cost of bureaucracy, not reduce it.
The changes - including the creation of the board - would limit the "extraordinarily wide" powers of central Government to micro-manage the NHS, the White Paper said.
Outlining the plans to offer patients more information about the quality of individual services, Mr Lansley said the principle would be "no decisions about me without me".
The data will be based on effectiveness and safety of treatment as well as increased use of patients' own assessments of the care they receive.
The announcement drew serious warnings from medical charities, however, that GPs' lack of commissioning experience could put some patients at risk.
Anne Keatley-Clarke, Children's Heart Federation's chief executive, said profits could be put before youngsters' health.
"We know parents of heart children often bypass the GP because their level of understanding of the condition is inadequate.
"This group of patients will be seriously let down if money and good systems to purchase their care are not firmly in place.
"We also hear of GPs refusing to treat heart children, where parents understand this is on cost grounds.
"Let's remember that many GPs are businessmen running as independent contractors and may well be looking at how they can maximise profits. We must not sacrifice heart children's care in a scramble to save management costs."
Ciaran Devane, chief executive of Macmillan Cancer Support, said: "There are big challenges ahead for the NHS in terms of providing much-needed improvements in post-treatment care and end-of-life care for cancer patients.
"GPs are well placed to bring about these changes as they have both the clinical expertise and are closer to their patients than primary care trust commissioners.
"But it's clear that GPs don't yet have the expertise to commission the full range of services needed for complex diseases like cancer.
"GPs will need specialist support and advice, and Macmillan will be talking to the Department of Health to ensure that our knowledge and experience can help the process ahead."
Public sector trade union Unison said the proposals were a "recipe for more privatisation and less stability".
Head of health Karen Jennings said: "Handing over £80 billion to untried, untested and probably private sector-led consortia is reckless.
"How will they be held accountable for that money?"
She went on: "Far from liberating the NHS, these proposals will tie it up in knots for years to come. They are a recipe for more privatisation and less stability.
"NHS staff will feel badly let down by plans to undermine national pay bargaining. In a race to do this, the Government wants employers to lead negotiations on new contracts, resulting in a two-tier workforce within trusts and anomalies across the NHS.
"If the NHS is to be more efficient, it needs to have stability. People in fear of their jobs, or how they are going to be able to deliver services, will not be able to make informed or rational decisions. This is no way to take patients or staff with you."
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