Councillors are to be stripped of the right to generous taxpayer-funded retirement funds in a bid to save up to £7 million a year, the Government said.
Since the local government pension scheme was opened to elected representatives in 2003, at least 4,548 have signed up for benefits based on their allowances, according to recent surveys.
Local government minister Brandon Lewis said it was "corrosive" to local democracy for them to be treated as employees rather than publicly-spirited volunteers.
The ban will apply from April 2014 with existing members able to retain any benefits accrued up to that time, he said - urging councillors to "do their bit" by choosing to exit earlier. Directly-elected mayors will be allowed to continue using the scheme.
In a written statement to MPs, Mr Lewis said councillors' allowances had "slowly become a form of salary, a situation worsened by the state-funded pensions".
"This is a corrosive influence on local democracy and independent thought, blurring the distinction between council staff and councillors. We do not believe that an occupational pension scheme intended for employees, and paid for by taxpayers, is an appropriate vehicle for councillors. Civic duty should not be bought."
He added: "Every bit of the public sector need to do its bit to help pay off the deficit. Local government grants are being reduced. Ministers have cut and then frozen their salaries. Public sector pensions, including Parliamentary pensions, are being reformed to reduce the burden on taxpayers. It is only right that councillors do their bit as well."
A "rough estimate" put the potential savings to the public purse at £7 million a year, he said, warning there was "absolutely no case for increasing councillor allowances to compensate".
Conservative Party chairman Grant Shapps said: "The Labour Party took taxpayers for a ride, and eroded confidence in public life and public servants by their culture of spin. Our reforms will strengthen the integrity and independence of councillors, so that these local champions of the people are seen to stand up for the best interests of taxpayers, not the town hall state."
The change - which is subject to consultation - was welcomed by the Taxpayers' Alliance campaign group, which carried out the most recent survey of the number of councillors in the scheme.