The machines, a feature of high-street betting shops, have been dubbed "the crack cocaine of gambling" and blamed for vulnerable people losing thousands of pounds in a short time.
AJ Bell investment director Russ Mould says the Government will want to find a way to keep getting the levels of tax it used to enjoy from betting machines when £100 stakes were allowed.
Culture Secretary Matt Hancock described FOBTs as a "social blight" which "prey on some of the most vulnerable in society".
The Bishop of St Albans, Alan Smith - who played a leading role on behalf of the Church of England in the campaign to cut the maximum stake on FOBTs - welcomed the decision.
Carolyn Harris, who leads the Parliamentary group on FOBTs, said: "This was morally the right decision to make", adding it was a victory for all whose lives "have been blighted by these toxic machines".
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In a statement on the United Kingdom government website today, Matt Hancock, secretary of state for the Department for Digital, Culture, Media & Sport (DCMS), commented: " When faced with the choice of halfway measures or doing everything we can to protect vulnerable people, we have chosen to take a stand.
It said: "We expect over 4,000 shops to close and 21,000 colleagues to lose their jobs".
The government also addressed the regulation of gambling adverts in its paper.
The machines, fixed-odds betting terminals (FOBTs), are regarded as addictive as they allow customers to bet on casino games every 20 seconds. In addition to media campaigns and strengthening the rules regarding age verification, ministers will review the age limit for playing the National Lottery.
Since Labour's 2005 Gambling Act the number of FOBTs - which offer casino-style games such as roulette - has increased from 20,000 to almost 35,000.
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But the machines are blamed for addiction, crime, debt, violence and family breakdown and their users are concentrated in some of the poorest communities.
The government said the stake limit would come into effect some time next year, but would not commit to an exact timetable and said it hoped to work with the industry to implement the policy.
"Working in conjunction with the Gambling Commission we believe these stake ranges would protect vulnerable gamblers, limit the number of job losses and the impact of livelihoods in the betting industry, and would protect some jobs in the racing industry", he wrote.
It acknowledged that new measures to protect players from harm have been introduced in recent times, including new rules which require operators to provide customers with more information about their gambling activity to help them manage their time and spend, to the initial launch of a new multi-operator self-exclusion scheme.
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Fellow gaming group 888 Holdings dropped 6 per cent, with GVC Holdings off 4 per cent and Playtech 2 per cent lower.