The prime minister has confirmed the controversial proposal for England and Wales had been dropped, in the face of criticism from judges and others.
Amid claims of a U-turn, he said making changes could be a "sign of strength".
The government had consulted on the proposal to extend the 33% discount as part of sentencing reforms.
Other reforms in the sentencing and legal aid bill, to be published later, include:
Prisoners will be made to work harder, longer, and pay more compensation to their victimsCuts to the legal aid budget Mandatory prison sentences for over-18s who threaten someone with a knifeConsultation on a new criminal offence of squatting Review of the "indeterminate" prison terms - introduced under LabourWriting into law that homeowners and shopkeepers who use reasonable force to defend property or themselves will not be prosecutedAt a press conference on Tuesday, Mr Cameron confirmed the controversial 50% discount proposal was being dropped altogether.
"For the most serious crimes, we've concluded this would certainly not be right. The sentence served would depart far too much from the sentence handed down by the judge, and this is simply not acceptable," he said.
For less serious crimes he said: "The sentence would be too lenient, the wrong message would be sent out to the criminal and it would erode public confidence in the system."
But he rejected suggestions it was a U-turn by the government - which had backed the proposal up to last month.
Continue reading the main story John Pienaar BBC Radio 5 Live chief political correspondentDowning Street denies any U-turn on sentencing, but that's getting off on a technicality.
Their defence? You can't reverse a policy until it is one.
Even so, Ken Clarke liked the idea of halving sentences for even serious crimes like rape, and has pointedly told MPs the Cabinet signed off the consultation.
Today the Government is backing away even more comprehensively than expected. Why?
The notion of 50% discounts on a sentence in exchange for an early admission of guilty has already been savaged-in-anticipation by Fleet Street's most read newspapers, it has divided opinion even among penal reformers and, crucially, polls suggest it would have angered and upset a large slice of the electorate.
Crime is consistently is the top two or three concerns among voters.
David Cameron - and this outcome was determined in Downing Street - has no intention of ceding ground to Labour on the issue of law and order if he can avoid it.
"Being strong is about being prepared to admit you didn't get everything right the first time, you are going to improve it and make it better," said Mr Cameron.He said he had changed his mind because, having looked at the figures, it was apparent that the proposal was more about cutting sentences rather than speeding up the court process.
But he backed Justice Secretary Ken Clarke as an "extremely effective minister" and a "very tough secretary of state" who had a hugely difficult job to do.
He also said there would be a review of the controversial "indeterminate" sentences for prisoners held for "public protection", who currently have no automatic right to be released.
Mr Cameron said that system was "inconsistent and uncertain" and would be replaced by a new system involving more life sentences and no automatic release at the halfway point for serious, sexual and violent offenders.
Instead the Parole Board would judge when it was safe for them to be released, at least two-thirds of the way through their sentence.
Mr Cameron said the current prison system was "failing and badly needs reform" - with half of prisoners reoffending within a year of release, many on drugs and many spending up to 23 hours a day in their cells.
"My mission is to make sure that families can feel safe in their homes and they can walk the streets freely and without fear," Mr Cameron.
"We want prisons to be places of punishment with a purpose, instead of prisoners setting in their cells. We will require them to work hard and reform themselves."
He added: "We will always pay the costs necessary to protect the public and to punish criminals."
Rape casesUp to last month ministers were talking about the possibility of extending the existing 33% "discount" on jail sentences in England and Wales to 50%.
But it came in for sustained criticism from sections of the media, which intensified after Justice Secretary Ken Clarke, in an interview defending the notion that rapists could get a 50% discount, appeared to suggest that some rape cases were more serious than others.
Ed Miliband: "It's yet another example of this government not being in touch with people"He said later he had used the wrong choice of words and said he was sorry to have caused upset.
On Tuesday morning Mr Clarke said while there had been some changes it was not a U-turn but a "perfectly balanced package of radical reform which is very necessary". He will confirm the contents of the bill to MPs later.
He had clashed with Conservative backbenchers over the policy - Tory backbencher Philip Davies had urged him to stand down as justice secretary so the party could "restore our reputation as a party of law and order".
The government wants to cut the cost of the prison budget and reduce the number of people in prison in England and Wales by 3,000 by 2014. The Ministry of Justice is having its budget cut by 25% in real terms by 2014-15. The 50% discount proposal would have saved more than ?100m.
The BBC understands that Mr Clarke will not be forced to find the money in his budget until later in the four-year spending review cycle.
Labour, which introduced the 33% discount when in government, say the plans to halve sentences were cost-driven and lacked public support.
Labour leader Ed Miliband said: "The public were rightly appalled that the government was proposing that people who committed rape should see their sentences cut by 50% and be let out within as little as 15 months.
"Now the prime minister has to ask how did he get himself into the position of making a proposal which wasn't thought through. It is yet another example of this government not being in touch with people and making proposals which they then have to abandon."
Ed Miliband: "It's yet another example of this government not being in touch with people"
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