About 80,000 women in Britain work as prostitutes
The law could be changed to allow two prostitutes and a receptionist or maid to work together legally in brothels, the government has confirmed.
Currently only lone prostitutes can offer sex from flats or other premises without breaking the law.
Launching the new prostitution strategy for England and Wales, minister Fiona Mactaggart said that working in groups would be safer for women.
The Home Office plans also include tougher rules for men who buy sex.
The strategy also means more kerb-crawlers could lose their driving licences, while prostitutes would get help over drugs and housing.
Ministers ditched earlier plans for licensed red-light zones, believing they could send out the wrong message.
Ms Mactaggart said such zones only shifted the problem to other areas.
"I cannot accept that we should turn a blind eye to a problem that causes misery for people living in or near red-light areas," she said.
"There is no evidence that decriminalisation or licensing prostitution would achieve our objectives of reducing exploitation, improving the safety of those involved and making local communities safer."
But she said prostitution would not be eradicated "overnight" and evidence from sex workers suggested allowing them to work in pairs off the street increased their personal safety.
"Where women are working for themselves and are less likely to be managed or pimped on a large scale, in the interim it is probably more sensible not to use the very serious penalties we have against people who run brothels," she said.
"Very small scale operations can operate in a way that is not disruptive to neighbours."
Kerb-crawlers arrested for the first time could be forced to take part in a "re-education" programme at their own expense, instead of being fined, under the plans.
But Ms Mactaggart said there would be no extra cash for police.
The strategy includes action against those who exploit prostitutes, such as people traffickers.
But Ms Mactaggart said men who use prostitutes who have been trafficked will not be charged with rape, as some campaigners have demanded, because they often reported their concerns.
"They don't think what is happening to those women is right - even if they don't think prostitution is wrong," she said.
The Conservative Party criticised the measures, saying more needed to be done to tackle the underlying social problems which caused prostitution.
But the strategy was "warmly welcomed" by child protection charity Barnardo's.
Chief executive Martin Narey said it would "help those who are trapped to find a way out of prostitution and [it] concentrates on bringing to justice those pimps who condemn children and young people to such misery".
But Cari Mitchell of the English Collective of Prostitutes told the BBC crackdowns made streets more dangerous for the women.
"Very obviously, if there's a crackdown, clients are much more nervous. And women don't have time to check them out properly before they get in the car," she said.
Instead, the group is calling for the end of criminalisation of prostitution.
Under the new strategy, police will be encouraged to work more closely with charities running safe houses to help women get out of the sex trade.
The strategy includes measures to encourage women to get help with drink or drug problems.
These include creating a new penalty for the offence of loitering or soliciting for prostitution so courts can direct women into drug or alcohol programmes rather than fining them.
And ministers promise to ensure access to drug treatment services, health services and supported accommodation to women who want to get out of prostitution.
Measures to improve prostitutes' safety include expanding the Ugly Mugs scheme, already running in several areas, which lets prostitutes know about violent punters.
The government will tighten up guidance for social workers, focusing on the children most at risk from being lured into prostitution, such as those leaving care.
Teachers, police officers and nurses will be trained to help the spot the risks.
About 80,000 women in Britain work as prostitutes, and half of those are under 25, the Home Office estimates.