DTI officials and members of the British Toy and Hobby Association (BTHA) have agreed to introduce the voluntary ban on teethers and teething rings which contain potentially-dangerous phthalates.
The move - thrashed out at a meeting at the DTI's headquarters in London - means shops will stop stocking the toys, while retailers will be asked to remove any existing stock next week.
The meeting followed a European Union scientific study which sparked fears that babies chewing or sucking such toys could absorb high enough amounts of phthalates to cause harm.
Previous tests have showed that large amounts of phthalates, used to make PVC plastic pliable, can damage livers, kidneys or testicles.
David Hawtin, director general of the BTHA, which represents 95% of toy retailers, manufacturers and importers, said scientific advice appeared to point to only these products as being of concern at the moment.
Call for wider ban
He said: "There are other plastic things which babies put in their mouths - not only toys - but if it's not for long the exposure to phthalates is very low."
The European Commission called on Wednesday for an immediate EU-wide ban on toys aimed at children aged under three which were designed to be put in the mouth.
The Brussels ruling said that, subject to final approval from the EU's Emergencies Committee, such items should be removed from the shelves "at the shortest possible notice".
Environmental group Greenpeace said the ban should be extended to all soft PVC toys containing phthalates which could potentially be chewed, even if that was not their main purpose.
The group listed a selection of toys on its internet site which it believed should be banned from sale.
Compulsory warnings
Thousands of soft PVC toys are sold across the UK each year - contributing to an industry which is worth nearly £2bn.
It wants compulsory warning labels on soft PVC toys using phthalates which are not designed to go into the mouth.
Greenpeace toxins campaigner Mark Strutt said: "Young children naturally put things in their mouth. It will be virtually impossible for parents and carers to stop them.
"All soft PVC toys for children under three should be removed from the shelves now."
Some toy manufacturers are now trying to use alternative plastics, while others are beginning to bring out toys labelled "PVC free".
Eight EU countries already limit the use of phthalates in toys - Austria, Denmark, Finland, France, Germany, Greece, Italy and Sweden.
About 70% of teething-style toys for the young are now made without the use of phthalates.