The Government has announced the 3p rise in fuel duty, planned for August, will not go ahead this year.
Chancellor George Osborne told MPs in the House of Commons that fuel duty would now be frozen until January 2013 to help families and businesses.
The move follows campaigns from road users' groups who had argued the increase would damage the economy.
"We are on the side of working families and businesses and this will fuel our recovery at this very difficult economic time for the world," George Osborne said.
The Government had originally told MPs in last year's Autumn Statement that the rise this summer would go ahead, but would be reduced from 5p to 3p.
Making the announcement, he said fuel duty would now be 10p a litre lower than it would have been had the coalition stuck to Labour's plans, and would be paid for by 'larger than forecast savings in departmental budgets.'
It is the fourth U-turn made by the Government since its March Budget, after changes to the rules governing tax relief on charitable giving, and VAT on static caravans and hot takeaway food were announced earlier this month.
According to The Telegraph, oil prices have fallen by almost 30 per cent since the Budget, although prices at the pump have only dropped 6 per cent. Petrol prices hit a record high in March and April this year, with some forecourts charging over 150p a litre for unleaded petrol.
Business groups have welcomed the decision for smaller businesses.
The Forum of Private Business' (FPB) chief executive Phil Orford said: "High fuel prices affect everyone, but for small firms in particular they are a crippling barrier to business when what we need is growth, not more punishing taxes to further hamstring the economy."
"Quite frankly this is the best piece of news for small firms since the Budget," he added.
The Confederation of British Industry (CBI) deputy director general Neil Bentley said the freeze would help support road hauliers and freight transport operators, making deliveries of goods 'that bit more affordable.'
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