New fathers are entitled to two weeks' paid leave
Fathers will be able to take six months' paternity leave, the government has announced.
The move will allow mothers to decide to return to work after six months and fathers to stay at home for the rest of the 12 months off allowed by law.
But plans to extend the total paid childcare period from nine months to a year look set to be shelved as the government attempts to save money.
Government sources say the proposal is "under review" with no decision taken.
In 2005, Labour said it would extend paid maternity leave to nine months - which it did in 2007 - with the "goal of achieving a year's paid leave by the end of the Parliament".
But the Guardian reported that aim would not now be implemented before the next election.
The additional paid leave would have cost £500m and given up to £1,600 to eligible families.
Labour deputy leader Harriet Harman, who is also minister for women and equality, said: "Mothers will be able to choose to transfer the last six months of their maternity leave to the father, with three months paid.
"This gives families radically more choice and flexibility in how they balance work and care of children, and enables fathers to play a bigger part in bringing up their children."
Labour is keen to demonstrate its family-friendly credentials ahead of a general election.
David Frost, director general of the British Chambers of Commerce, said it would be a good idea to allow fathers up to six months' leave "when the economy is working at full tilt" but it would harm businesses struggling with the recession.
"This is not the time to do it. It is a huge burden to plan for both a male and a female employee being away," he told the BBC News Channel.
Miles Templeman, director general of the Institute of Directors, said: "We strongly support new paternity leave rights for fathers, providing the government ensures that the new system is simple for businesses to administer and there is no overall increase in the total amount of paid and unpaid leave parents can take."
The government says its scheme has been designed to "minimise" the impact on companies.
It estimates that take-up of additional paternity leave is less than 6% and that just one in 137 small businesses will be affected.