About 2,500 post offices are expected to close by 2009 because of rising losses and fewer people using the network, the government has announced.
In the 1960s there were 25,000 post offices
Trade and Industry Secretary Alistair Darling told MPs that the cuts were needed because of losses of £4m a week, twice as much as in the previous year.
He also announced a five-year investment package of £1.7bn and local consultations on restructuring plans.
The Conservative Party said ministers had failed to have a long-term vision.
The government said it wants to help the Post Office modernise, restore profitability in its main offices, invest in new products and look at innovative ways to deliver services.
Services in pubs
As part of the restructuring, Mr Darling proposed setting up 500 outlets for small, remote communities such as mobile post offices and services based in village halls, community centres and pubs.
The consultation will seek views on the proposals until 8 March 2007.
The government also published new access criteria stating 90% of the population should be within a mile of a post office.
In rural areas, 95% of the population would be within three miles, doubling to six miles in remote areas.
The closures are likely to begin next summer and will continue for 18 months, reducing the size of the network to about 11,760.
In the 1960s, there were 25,000 post offices but these began to close in 1970 and the last decade saw 6,000 shut.
Most recently, post offices have been affected by the decision to pay pension and child benefit directly into bank accounts while TV licences, driving licences and passports are now being supplied online and through other retailers.
Speaking in the Commons, Mr Darling said the Post Office had an important social and economic role.
There was widespread recognition that the current size of the network of 14,000 post offices was "unsustainable", he said.
"Piecemeal closures are no good for anyone. The Post Office must plan a proper national network.
"Post offices face a long-term challenge.
"Internet, email and text-messaging have meant that people, young and old alike, increasingly use the phone or internet banking, cash point machines or direct debits to pay their bills.
"People are increasingly choosing to access services in different ways, resulting in some four million fewer people using their post office each week than two years ago."
He said the annual £150m subsidy to help rural branches stay open will be extended beyond 2008 until 2011.
Conservative post offices spokesman Charles Hendry said the announcement would bring fear and anxiety to people, often the most vulnerable.
"The government needs to recognise that if the local post office closes, often the last shop in the village closes as well, and a van for a couple of hours a week is no replacement for a post office open full time.
"His [Alistair Darling's] vision is to have fewer post offices, providing fewer services to fewer people."
Millie Banerjee, chair of consumer group PostWatch, welcomed the announcement but said she was surprised about the possibility of more urban closures, including those in deprived wards.
Andy Furey, of the Communication Workers Union, said the government must bring back government services to post offices without which the viability of the service would be damaged.
Liberal Democrat trade and industry spokesman Edward Davey: "This is the death knell for thousands of local shops and rural businesses that depend on their local post office.
"Rural and deprived urban communities will feel betrayed by these mass post office closures."