The maximum stake on fixed-odds betting terminals (FOBTs) will be reduced to £2 under new rules unveiled by the government.
Currently, people can bet up to £100 every 20 seconds on electronic casino games such as roulette.
Sports Minister Tracey Crouch said that a high number of people seeking treatment for addiction say FOBTs are “their main form of gambling”.
But bookmakers have warned it could lead to thousands of outlets closing.
Research by KPMG has estimated a £2 limit would cut revenue for the Treasury by £1.1bn over three years, an annual loss of £45m to local authorities and £50m to British racing.
Betting firm William Hill, makes just over half its retail revenues from FOBTs.
Its chief executive, Philip Bowcock, has told the BBC that a £2 FOBT limit would have a devastating impact on the High Street betting industry, with up to half of Britain’s betting shops facing threat of closure and about 20,000 jobs going.
However, following a review into the machines, Ms Crouch said FOBTs were “an outlier in the world of high-street gambling because of the speed with which it is possible to lose large amounts of money”.
She said: “Following analysis of the evidence received at consultation, £2 has been found to be the stake limit that would most substantially impact on harm by reducing the ability to suffer high session losses, while also targeting the greatest proportion of problem gamblers, and mitigating risk for the most vulnerable players for whom even moderate losses might be harmful.
Ms Crouch added: “Even cutting to £10 would leave problem gamblers, and those most vulnerable, exposed to losses that would cause them and their families significant harm.”
The Gambling Commission’s consultation on FOBTs for the Department for Digital, Culture, Media and Sport (DCMS) recommended a limit of up to £30.
Anti-gambling campaigners have condemned the machines, saying they let players lose money too quickly, leading to addiction and social, mental and financial problems.
Matt Zarb-Cousin is now a spokesman for the Campaign for Fairer Gambling but was previously addicted to FOBTs.
“It’s no exaggeration to call FOBTs the crack cocaine of gambling,” he has told the BBC.
“If we had a gambling product classification, similar to that of drugs, FOBTs would be class A.”