The last hereditary peers will be removed from the House of Lords under plans unveiled in the Queen's speech.
The first stage of Lords reform was back in 1999
In a move which would strip novelist Lord Archer of his peerage, peers convicted of a criminal offence would also be disqualified from the Lords.
Other constitutional changes promised in the speech are a Supreme Court and a new commission to appoint judges.
Those measures would wind up the post of lord chancellor, who currently acts as both judge and cabinet minister.
Lords reform is seen by ministers as unfinished business after they removed all but 92 hereditary peers from the House of Lords in 1999.
But both MPs and peers failed to agree on seven options for the second stage of reform, ranging from a completely appointed second chamber to an all-elected one.
On Wednesday, the Queen said: "Legislation will be brought forward to reform the House of Lords.
"This will remove hereditary peers and establish an independent Appointments Commission to select non-party members of the Upper House."
Whitehall officials say the bill would end centuries of government patronage and substantially reduce the prime minister's powers.
The plans to rid the Lords of the remaining hereditary peers will face stiff opposition.
Former Commons leader Robin Cook said having an all-appointed House was an "affront" which would not be acceptable to the public outside.
In a move which could give government opponents a majority in the Lords, the Liberal Democrats have warned ministers not to count on their backing.
Lib Dem spokesman Paul Tyler said ministers had spent last week attacking unelected peers for holding up legislation and should now meet their promise to make the Lords democratic.
"The pathetic little bill they now intend will do nothing of the sort, and is
likely to be defeated," he said.
Former Tory Lords leader Lord Salisbury, previously known as Viscount Cranborne, suggested Tony Blair had reneged on his promise to decide on the final shape of the reformed House before removing the last hereditaries.
But Commons leader Peter Hain said that was untrue and said options for an elected element in the Lords had not won majority support from MPs.
Alex Runswick, policy officer at Charter88, said: "The Queen's Speech reiterated the government's commitment to bringing democracy to Afghanistan and Iraq, but not to the House of Lords."
Lord Archer was jailed for perjury
The promised new Appointments Commission could also prompt controversy.
It will be able to vet party political nominations - but it is thought it will only be able to bar them on grounds of corruption, not their suitability to for the job.
The plans to strip peers convicted of a criminal offences is being seen as directed against former Conservative vice-chairman Lord Archer.
They would put the Lords in line with the rules governing MPs.
The move will be retrospective but Lord Chancellor Lord Falconer earlier this year denied claims it was "vindictive".
He said: "As a point of principle, should somebody who's been convicted of a criminal offence and sentenced to a year or more in prison be somebody who should sit in Parliament?"
Lord Falconer is set to be the last ever lord chancellor - a post that has survived for 1,400 years.
The announcement in the June reshuffle that the post was to be axed was branded a "botch" by Tony Blair's opponents, especially as there had been no consultation.
A Judicial Appointments Commission will take his place in choosing judges.
And law lords will now sit in a new Supreme Court, rather than in the House of Lords.
The court will be the last resort for appeals, as well as resolving any devolution disputes between Westminster and the Welsh Assembly, Scottish Parliament and Northern Ireland Assembly.
Under plans already published, the 15 commission members - five judges, five lawyers and five lay members - would be appointed by open competition.
A Whitehall official said: "Whilst all appointments would continue to be made strictly on merit, the commission would seek to make the judiciary better reflect the community it serves."
The government argues the changes will strengthen the independence of Britain's courts and move towards a European-style separation of the powers of government, Parliament and judiciary.
But the most senior judge in England and Wales, Lord Woolf, has warned judges independence could be at risk without the lord chancellor as their champion in the cabinet.
Although there has now been a consultation process, Lord Woolf also complained that judges' views were not sought in advance.
One last aspect of the Constitutional Reform Bill will be a framework for reforming the QC system for top barristers, although this will depend on the outcome of the current review.