The existing model was intended to drive down re-offending when it was introduced by then-justice secretary Chris Grayling in 2014.
But the chief inspector of probation, Dame Glenys Stacey, described the system as being “irredeemably flawed” earlier this year.
The National Probation Service (NPS) currently only supervises high risk individuals, while low and medium-risk cases are assigned to private firms called community rehabilitation companies (CRCs).
Justice Secretary David Gauke will announce changes that will bring all offender management under the NPS after CRC contracts end in December 2020.
The government will provide up to £280million a year for probation “interventions” from the private and voluntary sectors under the new model.
Each NPS region will have a dedicated “innovation partner” responsible for providing unpaid work and accredited programmes.
Probation services manage more than a quarter of a million offenders in England and Wales, including inmates preparing to leave jail, ex-prisoners living in the community and people serving community or suspended sentences.
Mr Gauke said: “Delivering a stronger probation system, which commands the confidence of the courts and better protects the public, is a pillar of our reforms to focus on rehabilitation and cut reoffending.
“I want a smarter justice system that reduces repeat crime by providing robust community alternatives to ineffective short prison sentences – supporting offenders to turn away from crime for good.
“The model we are announcing today will harness the skills of private and voluntary providers and draw on the expertise of the NPS to boost rehabilitation, improve standards and ultimately increase public safety.”
Under a programme called Transforming Rehabilitation, 35 probation trusts were replaced by the NPS and 21 privately-owned CRCs in 2014.
The move was heavily criticised by MPs and watchdogs.
Earlier this month, the Public Accounts Committee accused the Ministry of Justice (MoJ) of taking “unacceptable” risks with taxpayers’ money when rushing through the shake-up at “breakneck speed”.
An inspection report previously revealed thousands of offenders were being managed by a brief phone call once every six weeks.
Dame Glenys has said she is “delighted” at Mr Gauke’s decision, and added: “Probation is a complex social service and it has proved well-nigh impossible to reduce it to a set of contractual requirements.”
Shadow justice secretary Richard Burgon said the Conservatives “have been forced to face reality and accept their probation model is irredeemably broken”.
He added: “The Tories didn’t want to make this U-turn and had been desperately trying to re-tender probation contracts to the private sector. It is right those plans have been dropped and that offender management is to be brought back in-house.”
Ben Priestley, the national officer for probation at Unison, described the move as “a long-overdue step in the right direction”.
He added that the union is “convinced probation services are best delivered locally, rather than from the one-size-fits-all centralised model which is the National Probation Service”.
The companies Interserve, MTC, Seetec and Sodexo Justice Services are responsible for 17 CRCs.
Janine McDowell, CEO for Sodexo, was speaking on behalf of the firms when she said: “We are disappointed by this decision.
“As well as increasing cost and risk, this more fragmented system will cause confusion as offenders are passed between various organisations for different parts of their sentence.
“We will now work closely with the government to minimise risks as the cases we manage are transferred to the National Probation Service.
“The government has recognised our track record of innovative, evidence-based initiatives to tackle knife crime, stalking and alcohol-related offences and we remain committed to working with them to drive down re-offending.”
The MoJ said the reforms announced on Thursday are designed to build on the “successful elements” of the existing system, which led to 40,000 additional offenders being supervised every year.
The ministry will now run a period of “market and stakeholder engagement” to finalise the proposals in order for the new model to come into effect in spring 2021.
Offender management in Wales will be integrated by the end of this year.