About 340,000 parents take part in the vouchers scheme
Plans to scrap tax breaks for childcare have been scaled back following a revolt by Labour MPs, sources have told the BBC.
Top-rate taxpayers who join the scheme from 2011 will see the benefit cut by nearly half, rather than scrapped altogether as originally planned.
Labour MP Patricia Hewitt said she was "delighted" by Gordon Brown's decision to back down.
But the Tories said the government's childcare policy was in "chaos".
A Downing Street source said the prime minister was in "listening mode" on the issue and decided to make the concession after Labour backbenchers raised concerns over the plan.
Mr Brown had argued that the non-means-tested tax break, which is used by 300,000 families to save £2,400 a year, was badly targeted.
But 43 Labour backbenchers threatened to revolt, fearing scrapping it would harm their chances of re-election.
Now, in a letter to a Labour backbenchers, Mr Brown has confirmed the voucher scheme will continue for the time being - but that higher-rate taxpayers will no longer get any extra benefit.
Previously there were plans to phase the scheme out from 2011 and scrap it entirely from 2015.
But now the only change will be that new entrants to the scheme from 2011 will only get tax relief at the basic rate of 20%.
At present, higher-rate taxpayers receive relief at 40%, with the result that the richest 6% of eligible parents enjoy 33% of the benefits.
But Downing Street says plans to divert the money saved by scrapping the scheme to expand free childcare for two-year-olds will have to be changed too - and the extra places can now no longer be delivered as quickly.
Former Health Secretary Patricia Hewitt, who was among the Labour MPs campaigning for a change of heart, welcomed the decision.
She told the BBC: "Assuming this has now been confirmed, I'm delighted.
"Gordon Brown and the government have made the right decision on this. What will happen from 2011 is we will continue to be able to give families tax relief on their child care vouchers but in a way which is frankly fairer than the present system."
But shadow families minister Maria Miller said the U-turn showed that the government's childcare policies are "in chaos".
She said: "Despite the rhetoric about being family friendly, all we seem to get in practice is underfunded policies and U-turns.
"The government has shown neither consistency nor honesty when it comes to childcare.
"This government is more concerned with creating dividing lines than helping parents. Parents and early years providers deserve better."
Giving her reaction to the announcement, Lib Dem families spokeswoman Annette Brooke said: "Such an ill thought through proposal should never have seen the light of day.
"Gordon Brown is yet again left looking weak, while childcare provision in this country remains a mess."