Following a consultation, the Department for Innovation, Business & Skills (BIS) concluded that it could "see no justification" for retaining the Land Agreements Exclusion and Revocation Order, which had meant the competitiveness of the beer tie could not be looked at under the Competition Act.
Moves to scrap the order had been supported by anti-tie campaigners inlcuding Fair Pint and CAMRA.
Fair Pint's Steve Corbett said the decision removes "one of the obstacles" to properly scrutinising pubco agreements with their tenants He said: "The government's decision to revoke the order is a small bit of good news for the pub sector.
"On its own the effects of the removal of this order will be small, but it does lift a significant barrier to future regulatory intervention in the sector.
"The removal of the order will mean that pub owning companies will have a duty to ensure that their agreements aren't anti-competitive and to go through a process of providing a self assessment about the impact of their lease agreements on competition in the sector and to ensure that they not in breach of competition law."
The BIS report stated: "We see no justification for retaining this exclusion order. We agree with the Competition Commission's view that requiring enterprises to self assess land agreements for compatibility with competition law, in the same way they must assess other types of agreement, would be wholly beneficial."
The Association of Licensed Multiple Retailers' chief execuitve Nick Bish said: "This move will require companies require companies to scrutinise themselves on an annual basis and to self-assess whether or not they comply with competition law.
"This is a victory for common sense and fairness which will further clarify relationships between all parties in a lease."
Bish added: "We still look forward to the industry Code on rents and lease agreements but it is a sensible and pragmatic step forward which the ALMR lobbied for and now applauds."
CAMRA also welcomed the move. Mike Benner, CAMRA's chief executive, said: "This is very positive news for pub-goers, small brewers and struggling lessees. The Order is an anomaly which has for too long given legal cover to companies which are party to potentially anti-competitive agreements.
"The large pub owning companies will now have to review their existing beer tie arrangements in the full knowledge that they will be liable to severe penalties if it is subsequently proven that they have breached Competition Law.
"CAMRA remains supportive of the beer tie model provided that it offers a fair share of benefits to consumers through greater choice, price competition and quality. We now urge the large pub owning companies to publicly commit to delivering on the basic principle that a tied tenant should be no worse off than they would be if free of tie."