Communities and local government secretary Hazel Blears announced the reduction of performance indicators for councils from more than 1,000.
Ms Blears told the Society of Local Authority Chief Executives (Solace) conference she was unveiling a "radical re-engineering" of the relationship between the state and councils and communities which would "bring government much closer to local people."
The full set of Whitehall performance indicators - that come into force in April - slashed the number from 1,200 to just 198.
This gives councils major new freedoms to direct their focus and resources at the issues local people care about, from tackling anti-social behaviour, cracking down on gun culture to stepping up work to improve local education standards and tackling climate change, said Ms Blears.
Delivering a direct challenge to local government - who have long called for greater freedom - Ms Blears said they must use this “once in a generation” opportunity to deliver better services and make a positive difference in their local community.
She said: “We have delivered local government unprecedented freedoms, financial flexibility and revenue raising powers. You must now step up to the mark, embrace this new responsibility and demonstrate a strengthened approach to governing."
The New Performance Framework for Local Authorities and Local Authority Partners: Single Set of National Indicators includes:
Up to£5bn to be transferred out of ring-fenced budgets - this will allow councils and communities to shift resources to local priorities, like tackling crime or worklessness
Business rates supplements - a tool enabling councils to work with business to invest in projects to promote long-term economic growth
From next April there will be no new mandatory targets on councils - apart from the 17 statutory targets for educational attainment and early years
The government will not prescribe any of the targets in local area agreements (LAAs), but will aim to agree them with local partners as part of the negotiation, and councils will be required to involve local communities in the process
The new framework will apply to primary care trusts and police authorities, as well as councils through new LAAs
Ms Blears' full speech Councils are the solution
'Set councils free'
Local Government Association chairman Sir Simon Milton (Con) said: "The bonfire of red tape that Hazel Blears has promised for councils is an excellent step that will help free councils to deliver on what local people want and need.
"Previous centralisation had led to an explosion of bureaucratic and regulatory machinery. Prescriptive legislation and guidance had led to over 1,000 nationally-set performance targets and indicators for each council."
'Power in local hands'
He added: "The previous centralised system had fostered a culture of dependence, it had squeezed out local ambition, local choice and accountability, and focused the attention of managers on the diktats of Whitehall rather than on service users and local residents.
"The ending of these targets will allow local people and local councils to have more power in their hands to decide what is right for them."