School pupils aged 16 and above are to be given a legal right to absent themselves from collective worship.
All schools must provide a daily act of worship
Under current law, all state schools "must provide daily collective worship for all registered pupils", apart from those withdrawn by their parents.
Now education minister Lord Adonis has adopted an amendment brought by the Liberal Democrat Baroness Walmsley.
Baroness Walmsley argued 16-year-olds could pay tax and get married, yet could not refuse to worship.
She moved the amendment during the Education and Inspections Bill's Lords committee stage.
"There is no justification for forcing young people to take part in a religious service with which they do not agree. Freedom of worship, or non-worship in this case, is a basic part of our rights as citizens of a free country," Baroness Joan Walmsley said.
"Forcing young people to attend religious services is self-defeating. If we want young people to behave more maturely, we have to give them responsibility for their own decisions over such personal issues as religion."
Lord Adonis said: "We accept most of the amendment and I will seek to move an appropriate amendment at report stage."
Under current legislation, maintained schools in England and Wales "must provide daily collective worship for all registered pupils" that is "wholly or mainly of a broadly Christian character".
If the head teacher and governing body feel that a broadly Christian act of worship is not suitable, the head can apply to the local Standing Advisory Council on Religious Education to have the Christian content requirement lifted.
Schools in Scotland are told to provide opportunities for religious observance "at least six times in a school year" and are encouraged to use Christian resources.
Lord Adonis's decision follows a report in the Times Educational Supplement last week about a revolt by a group of pupils at St Luke's College in Bexley, south London - a Catholic sixth-form college - over compulsory attendance at Mass.
Legal threat dropped
The decision was welcomed by the National Secular Society.
The society said it would now drop the possibility of a legal challenge to collective worship on human rights grounds.
Executive director Keith Porteous Wood said: "This is very good news indeed.
"It has seemed intolerable to us that young people are being forced to worship at school, sometimes against their will. It is self-evidently a breach of their human rights.
"Indeed, it can be argued from a human rights perspective that the age limit for self-exemption should be lower.
"The church is quite happy to allow 14-year-olds to confirm their commitment to Christianity, yet it will not accept that other children of that age can feel equally certain that they don't believe."
Canon John Hall, chief education officer for the Church of England, said sixth form students may require greater freedom.
He said: "Students have always been able to withdraw from these sessions with parental consent and we understand that in practice a more flexible approach for those in sixth-form may be appropriate.
"This may be of little relevance - in practice, we are aware of very few cases of withdrawal from collective worship."
Canon Hall said collective worship was an "integral" part of the education system and held "great educational value" for young people at all stages of their school career.
"The act of daily worship allows students an opportunity to encounter God and equips them with the tools of reflection and silence we all need to help cope with life-changing moments," he said.
"These sessions also help promote tolerance and understanding and can foster strong links between school and community."