Ministers have bowed to pressure to allow the creation of human-animal hybrid embryos for research.
Embryo research will be controlled
When the ban was proposed last year there were fears among scientists it would hamper medical breakthroughs.
Hybrid embryos will only be allowed for research into serious disease and scientists will require a licence.
Scientists welcomed the proposals put forward in the draft fertility bill, but opponents questioned the ethics of using human cells in this way.
Public Health Minister Caroline Flint denied that the government had staged a climbdown, saying they had always wanted to "leave the door open" for this type of research to be allowed on a case-by-case basis.
She said scientists had put forward more evidence about the importance of using hybrid embryos.
"We saw this was an area where these could be used for scientific benefit."
The draft bill allows the creation of human embryos that have been physically mixed with one or more animal cells. However, true human-animal hybrids, made by the fusion of sperm and eggs, remain outlawed.
And in all cases it would be illegal to allow embryos to grow for more than 14 days or be implanted into a womb.
Scientists say their work could help find cures for devastating diseases, such as Alzheimer's.
Professor Robin Lovell-Badge, head of the division of Developmental Genetics at the MRC National Institute for Medical Research, said: "This research has many potential benefits for the understanding of disease and for treatments and should not be feared."
'Need for the father' removed
Welfare of the child checks retained
Sex-selection for non-medical reasons banned
Statutory storage period for embryos extended from five to 10 years
Donors informed if their child is seeking identifying information about them
Parenthood provisions for civil partners and other same-sex couples
Screening embryos for serious medical conditions and as a suitable tissue match permitted
Deliberately screening-in a disease or disorder, such as if two deaf parents wished to have a deaf child, banned
Up to a year 'cooling off' period if consent to embryo storage by one of the couple involved is withdrawn
Donor-conceived children allowed to find out if they have sisters or brothers also conceived through donation, when they reach 18
But Josephine Quintavalle, of the campaign group Comment on Reproductive Ethics, disagreed, saying: "It is appalling that the government has bowed to pressure from the random collection of self-interested scientists and change its prohibitive stance.
"This is a highly controversial and terrifying proposal, which has little justification in science and even less in ethics.
"Endorsement by the UK government will elicit horror in Europe and right across the wider world."
The government signalled its intentions in December's White Paper, which contained 25 proposals to overhaul the current laws.
Ministers felt the Human Fertilisation and Embryology Act 1990 needed to be updated as science has moved on significantly.
The draft bill also proposes scrapping the requirement for clinics to consider the need for a father when deciding on treatment.
This means clinics will no longer be able to deny treatment to lesbians and single mothers out of hand.
Another proposal is to merge the regulatory bodies the Human Fertilisation and Embryology Authority and the Human Tissue Authority to form a single regulatory body called RATE.
The British Medical Association, however, believes this is a bad idea.
It says the complex and sensitive issues that surround reproduction and embryo research are very different from those relating to the retention and use of organs and tissues after death and, therefore, would be too much for one new body to oversee.