Legislation prompted by the Alder Hey organ-stripping scandal has been published by ministers.
Research will be regulated by the Act
The Human Tissue Bill proposes a regulating authority to make sure that consent is obtained before organs and tissues are kept by hospitals.
Nationwide checks showed that thousands of hearts, brains and other body parts had been retained without permission.
New criminal offences of "trafficking" in body parts, or keeping tissues without consent will be created.
The scandal at Alder Hey Children's Hospital in Liverpool came to light in the 1990s, and was followed by revelations from hospitals elsewhere in the UK.
Parents discovered that in some cases, following the death of their children in hospital, the bodies had been returned for burial or cremation minus one or more internal organs.
Occasionally this resulted in second, or even third, funeral as parents demanded the return of these parts, years after the death of their child.
Many institutions, particularly research units, were storing scores of tissue samples dating from decades earlier.
The inquiries into events at Alder Hey and the Royal Bristol Infirmary suggested it was clear that consent had never been obtained for many of these.
A later report, written by Dr Jeremy Metters, the HM Inspector of Anatomy, concluded that between 1970 and 1999, tens of thousands of brains were retained after post mortems.
If there is a coroner's inquest about the death, no consent is needed, but for ordinary post-mortem and for research purposes, permission should be asked.
The Bill will establish a new body - the Human Tissue Authority - which will replace the Retained Organs Commission, due to close by April 2004.
It's job would be to keep a check on the taking, retention, use and disposal of human tissue - and would also be given the job of approving live donor transplants.
Organisations or firms wanting to use retained human tissues would need to be licensed by the authority, and there would be inspections to make sure that proper records of consent from relatives had been obtained.
Taking tissue without consent would be an offence, as would selling human bodies or body parts, or storing them without a licence.
John Reid, the Secretary of State for Health said : "We know, from the Bristol, Alder Hey and Isaacs Inquiries, that the removal and keeping of organs and tissue without consent took place on a large scale.
"It was a tragedy for the families affected, unacceptable and took place within weak legislation.
"This legislation will ensure that this does not happen again.
"This Bill will enshrine consent as the clear basis for the keeping and use of tissue and organs."
The Bill was welcomed by Michaela Willis, Chair for the National Committee on Organ Retention.
She said: "NACOR is delighted with the proposed legislation, ensuring that families whose loved one has to undergo a hospital post mortem in the future, can be assured that proper consent - backed with comprehensive information - will allow them choice, and will be mandatory practice."
The legislation would cover England, Wales and Northern Ireland, with separate legislation planned in Scotland, and was welcomed by the British Medical Association.
BMA Council chairman Mr James Johnson said: "The public needs reassurance that strict guidelines and procedures govern the use of tissues that are used for donation or research purposes."
The Royal College of Pathologists also welcomed the Bill, and expressed the hope that it would permit, with consent where so required, the lawful use of human tissue in medical education and research for the benefit of future patients.
However, Professor James Underwood, the college president, said "While I welcome new legislation to replace the now discredited Human Tissue Act 1961, the Bill published today may place new but unwarranted restrictions on using surplus tissue from living patients for harmless and beneficial purposes."