A-level candidates in England, Wales and Northern Ireland are to face more "stretching" questions, with a new A* grade marking out the best from 2010.
Increasing numbers of students have been getting A grades
And all state school pupils in England will be able to study the International Baccalaureate, the government says.
The changes, outlined by Education Secretary Alan Johnson in Birmingham, would be alongside the introduction of vocational Specialised Diplomas.
Teachers' leaders accused ministers of elitism and sowing confusion.
More thoughtful answers
The Qualifications and Curriculum Authority (QCA) has been working on ways of implementing the government's previously stated intention of making A-levels more challenging.
The problem has been that so many students now get top grades that the oversubscribed universities have difficulty differentiating between them.
The government is now agreeing with the QCA in saying all questions should be more open-ended, requiring more thoughtful, detailed answers - and with a new top A* grade above the existing A to E grades.
Courses under the new system would be start in 2008 with the first of the new A*s being awarded in 2010.
Mr Johnson said: "I don't accept the views of those who seek to portray our nation and its children as being well on its way to hell in a handcart, but I do agree that we should ensure that A-levels remain stretching," he said.
The QCA said the changes would apply across England, Wales and Northern Ireland.
In Wales, Education Minister Jane Davidson also signalled another significant change, noting "with interest the proposals being put forward" for Specialised Diplomas in England.
"We will need to study the details and consider the way forward for Wales, taking regard of our 14-19 and Welsh Baccalaureate plans."
Boost for IB
The government in England is also providing £2.5m so every local authority has at least one centre offering the International Baccalaureate (IB) Diploma.
Although it has traditionally been the preserve of the independent sector, 46 of the 76 schools now offering the IB are in the state sector, in 32 local authorities.
six main subjects studied over two years
from literature, a second language, individuals and societies, experimental sciences, mathematics and computer sciences and the arts
plus three compulsory sections: 4,000-word essay on a topic of the student's interest; theory of knowledge; and creativity, action, service
IB pass rates constant for 20 years, A-level pass rates have risen for 15 years
IB failure rate about 20%, A-level about 4%
The government funding will mean about 100 more such centres, the education department said - mainly sixth form colleges.
The IB is regarded as being more broadly based than A-levels in three or four specific subjects.
It involves six main subjects being studied over two years, chosen from literature, a second language, individuals and societies, experimental sciences, mathematics and computer sciences and the arts.
The general secretary of the Association of School and College Leaders, John Dunford, said offering the IB as well as A-levels and the new Specialised Diplomas was extremely costly even when schools and colleges worked in partnership.
Tony Blair wants 400 academies eventually, not just 200 by 2010
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"Unless the government recognises the financial costs of these proposals, and funds them appropriately, they will never get off the ground."
Shadow Education Secretary David Willetts said the Conservatives had been proposing more rigorous A-levels and an A*, and it was right to offer more students the International Baccalaureate.
"However, Tony Blair should have been bolder. He should have given students an entitlement to sit the IGCSE, and an entitlement to study individual sciences for GCSE," he said.
Liberal Democrat spokeswoman Sarah Teather said: "Instead of 'cutting and pasting' the International Baccalaureate onto the existing exams system the government should reform the whole curriculum.
"Students would be better served by replacing GCSEs and A-levels with a diploma as proposed two years ago by the independent Tomlinson Commission."
The first Specialised Diplomas are due to be taught from 2008, in five skills sectors - information technology, engineering, health and social care, construction and the built environment and creative and media studies.
The leader of the NASUWT teachers' union, Chris Keates, said it would now be a case of "Baccalaureate for the best, Diplomas for the rest".
She added: "It is becoming increasingly evident that Number 10 is bewitched by the independent sector and is seeking to mimic its most unattractive feature - elitism."
Steve Sinnott of the National Union of Teachers said the government could still develop a "home grown" baccalaureate rather than the International Baccalaureate and a host of other qualifications.
"Currently too many different types of exam are being taken in different schools causing confusion for pupils and parents alike," he said.