Up to 20,000 civil servants will be relocated from Whitehall with savings to the taxpayer of an estimated £2bn over 15 years.
Civil servant jobs could be moved from Whitehall
Sir Michael Lyons was commissioned by Gordon Brown to look into moving the workers out of London to the regions.
The chancellor confirmed the move in his reaction to the report when he delivered his Budget on Wednesday.
Last month Tony Blair outlined his vision of a reformed civil service driving, not inhibiting, change.
Sir Michael, who is director of the University of Birmingham's Institute of Local Government Studies, argued relocating key services out the capital would achieve a better regional balance of government activity.
He also recommended 7,000 jobs be shed.
He said: "I believe that a new pattern of government service will contribute significantly to the government's policies for the reform of public services, improving regional growth, national competitiveness and devolution.
"Government needs to take firm action to recast the pattern of its business in a way that better meets the needs of the nation in the new century."
Jonathan Baume, who leads the First Division Association representing top civil servants, said any relocation needed to be "very carefully managed" to avoid disruption to individual employees and their families.
"There is also no excuse for compulsory redundancies at any levels of the service as a consequence of these proposals," he added.
"We welcome the acknowledgement that major dispersals require considerable
initial investment, and that any savings will only come in the long term."
In his speech in February Mr Blair said the civil service needed to "encourage and reward lateral thinking".
"It needs to reward civil servants who look outwards for learning rather than up the hierarchy for approval," the prime minister said.
Mr Blair also called for an assessment of the regulatory burden of any new piece of legislation.
80,000 job cuts?
"For civil servants and ministers regulation often appears costless but for those delivering on the frontline in schools or hospitals or in small businesses it is not."
He added: "The world has changed and the civil
service must change with it."
Also in February, a review commissioned to look for greater efficiency in government suggested £15bn could be saved each year.
Sir Peter Gershon, head of the office of government commerce (OGC), came up with proposals which could see the number of civil servants cut by 80,000.
The Tories and Liberal Democrats have also outlined plans to shake-up the civil service and save money.
Newcastle, Sheffield, Bristol and Liverpool are among the places that could benefit from Sir Michael's relocation proposals.