Around 1,000 black cabs have been taken off the roads after an eighth taxi burst into flames in three months.
Transport for London (TfL) announced its decision within hours of the latest vehicle's engine catching fire in central London on Wednesday night.
TX4-type cabs with a 56 registration must pass a safety inspection by manufacturers LTI before being allowed back on the road.
TfL said the safety of taxi drivers and passengers was its main concern.
On Wednesday, TfL said it was ordering all the TX4-type with a 56 registration to undergo safety checks after reports of engine fires.
But after the latest incident the vehicles have been completely withdrawn pending assessments by the manufacturer LTI, which is based in Coventry.
"We expect that either the manufacturer or the dealers will fully compensate all the drivers"
"This is not a step we take lightly, but we cannot take any chances with the lives of London's taxi drivers or their passengers," the TfL spokesman said.
"Licences will only be reinstated once LTI have certified that individual vehicles have received a safety check."
Bob Oddy, general secretary of the Licensed Taxi Drivers' Association, told BBC London: "The drivers I've spoken to, who were personally involved, haven't had any passengers in their cabs.
"They had plenty of time to get out of their cabs before the vehicles flared up.
"Some of the reports have implied that they're flaring up very quickly. That's not really the case."
He added: "We're particularly concerned about the loss of time that our drivers are experiencing and we expect that either the manufacturer or the dealers will fully compensate all the drivers who lose working time.
"I honestly don't think there will be a decrease in the number of passengers taking cabs. The problem has been dealt with and I think anyone hailing a cab today can do so with confidence."
Random checks
The Labour Group on the London Assembly said London Mayor Boris Johnson should now reconsider his proposals to reduce taxi inspections from twice to once a year.
Valerie Shawcross, Labour's transport spokesperson, said: "These fires serve to illustrate the need for regular testing as reducing their frequency could put passengers at risk."
A spokesman for the mayor said annual taxi inspections would remain and that safety was "the number one priority".
"Val Shawcross fails to mention that the changes being consulted upon would only be made in conjunction with a range of other measures to ensure that standards are safeguarded and improved," he said.
These include the expansion of random on-street safety checks and the introduction of a fee for vehicles that did not pass the annual inspection first time round, he said.
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