The government has formally dropped plans for a Las Vegas-style supercasino.
In a bid to offset criticism and a potential legal challenge from Manchester, selected last year as the site for the first supercasino, ministers will instead promise a multimillion pound regeneration package.
Culture secretary Andy Burnham confirmed the government will not authorise plans for a regional supercasino after evidence pointed to scepticism about its benefits and persistent concern about its ill effects.
Plans for a further 16 medium casinos are set to go ahead, but casino operators will be subject to a number of restrictions.
All casinos will be required to offer non-gambling areas and will be barred from plying gamblers with free drinks.
The government will also ban the use of credit cards and insist cash machines are located away from gaming areas. Casinos will be required to shut for at least six hours a day.
Operators failing to comply with these rules face losing their license, fines or imprisonment, Mr Burnham warned, claiming the measures amounted to the roughest regulatory regime for gambling in the world.
The culture secretary also raised the threat of a legally enforceable levy if casino operators failed to "substantially increase" their voluntary contributions to the Responsibility in Gambling Trust by the end of the year.
The Conservatives attacked the compromise decision, arguing the risk factor for problem gambling is not the size of the casino but the underlying protections put in place.
Shadow culture secretary Jeremy Hunt said: "The original decision on the supercasino now appears to be about nothing more than headlines as the government has pretty much nothing in the cupboard to tackle the growing social evil of problem-gambling."
Gordon Brown signalled his intention to drop plans for supercasinos shortly after taking office in June, arguing there may be better ways to regenerate deprived areas.
A government review has reported scepticism as to the benefits of creating a new industry to revive an area, and instead argue for a combination of better transport, skills and targeted investment.
Communities secretary Hazel Blears today offered Manchester's Sportscity a £10 million package, to be spent on developing a site for the leisure facility. The development will create 1,600 jobs and ministers argue it can play a key role in regenerating the east of the city.
The Higher Education Funding Council is also set to look at demand for higher education in a bid to attract students to more deprived areas of Manchester.
Manchester city council had been threatening a judicial review of the decision to drop supercasinos and Labour MPs hope the package will offset a backlash.
The government insists the regeneration effect of supercasinos remains uncertain and Ms Blears argued the relatively high-pay of casino jobs would have created widespread competition and not necessarily benefited local employment.
Blackpool, which lost out to Manchester in last year's supercasino bid, will also benefit from its own regeneration package.
Nearly £300 million will be poured into the town, including £100 million for new schools and a further education campus and £100 million for transport.
The Liberal Democrats have warned of the potential cost to the taxpayer of the supercasino U-turn.
Lib Dem figures claim councils have already "wasted" nearly £1 million bidding for the casino while Manchester could still sue for as much as £250 million.
Culture spokesman Don Foster said: "Gordon Brown voted in favour of a supercasino and then changed his mind. We were then promised a report on alternatives to casino-led regeneration, but it still hasn't been published.
"Ministers now owe taxpayers an explanation for leading councils on a wild goose chase, wasting huge amounts of public money and failing to offer realistic alternative options for regeneration."