A 34% reduction in money for the commemorative signs means no more will be approved until new sources of finance have been found by 2015.
But those which have already been approved are still expected to be installed by a team reduced to two full-time employees.
The Blue Plaques were originally set up under the Royal Society of Arts and have been run by English Heritage since 1986
First introduced in 1866, there are currently 869 blue plaques which celebrate famous people from the past by marking buildings where they lived and worked in London.
The only previous time installations have been stopped during almost 150 years of history was between 1915 to 1919 and 1940 to 1947, coinciding with the wartime economies of the First and Second World Wars.
A spokeswoman for English Heritage said: "Following our 34% funding cut in the 2010 spending settlement, English Heritage commissioners made the decision that the Blue Plaques scheme was to be funded in an alternative way in the future.
"As a step towards creating a new and more self-sustaining scheme, the Blue Plaques team will be reduced to two people during 2013.
"They will continue to erect plaques already agreed by the independent advisory panel and work up the details of a new approach to running the scheme that will be announced in 2014.
"English Heritage remains committed to the Blue Plaques scheme that has done so much to inspire Londoners and visitors with the history of the capital and its inhabitants."
The overall funding for English heritage will drop from £130 million in 2010-11 to £92 million in 2014.
A spokeswoman for the charity told HuffPost UK the plaques cost an average of £965 to manufacture, but installation costs vary wildly.
"Sometimes they are easy to install, sometimes they require scaffolding, sometimes we have to close the whole road, like we did when we installed the John Lennon plaque, so it's hard to put a figure on it," she said.
"We pledged not to cut our front-line services, the grants we give to maintain buildings, the listing of buildings and legal advice. We will continue to install all the plaques already commissioned, but we will not approve new ones for at least two years."
English Heritage said its decision to reduce staff and suspend commissioning new plaques for two years, would allow it to make savings of £240,000 over the same period.
Possible sources of finance after 2014 could come from private investment or other heritage foundations, the spokeswoman said.
New applicants are now being made aware of the decision.
A plaque to be unveiled next week in Great Russell Street for architect John Nash is expected to be among the last for the foreseeable future.
More:Uk News Blue Plaque Scheme Paused Blue Plaque Scheme Scrapped Blue Plaque Scheme Suspended Blue Plaque Scheme
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