Britain is to make no new financial aid commitments to India with immediate effect, International Development Secretary Justine Greening announced on Friday.
The move will stop all financial assistance from the UK to India from 2015, and will save about £200 million a year between now and then.
Greening, who took responsibility for Britain's aid budget in September after being shuffled from the transport department, said programmes already under way would be completed as planned but no new ones would be signed off.
British support for India will in future be limited to skills-sharing in area areas like trade and investment and health.
"After reviewing the programme and holding discussions with the government of India this week, we agreed that now is the time to move to a relationship focusing on skills-sharing rather than aid," the International Development Secretary said.
"Having visited India I have seen first hand the tremendous progress being made. India is successfully developing and our own bilateral relationship has to keep up with 21st century India. It's time to recognise India's changing place in the world.
"It is of course critical that we fulfil all the commitments we have already made and that we continue with those short-term projects already under way which are an important part of the UK and government of India's development programme."