Chancellor George Osborne has scrapped August's planned 3p rise in fuel duty and frozen the tax for the rest of the year.
The £500 million boost to motorists can be paid as a result of departmental savings across Whitehall, the Treasury said.
Announcing the measure to cheers from Tory benches in the Commons, Mr Osborne said fuel duty would now be 10p a litre lower than under the plans inherited from Labour.
"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", he said.
Birminghampost.net reported this morning that Labour had called for the rise to be scrapped.
Shadow chancellor Ed Balls warned that the increase would only worsen the recession squeeze and urged the Government to postpone it until at least January.
He said the delay could be funded by closing tax loopholes and using the £500 million underspend from the Olympics budget.