The government added that the plants could instead be replaced at the end of their life spans as part of an ambitious new climate programme.
"The phase-out law will be abolished. The ban in the nuclear technology law on new construction will also be abolished," the centre-right government said in a statement.
"Authorizations can be granted to successively replace the existing reactors once they reach the end of their economic life spans," it said.
The country had planned to wind down its nuclear energy capacity, ending it in about 30 years' time or when the installations came to the end of their lives.
Since 1999, it has closed two of its 12 nuclear reactors.
Nuclear power accounts for nearly half of Sweden's electricity production.
Atomic energy policy has long been a symbol of division in the ranks of the centre-right, which has held power in Sweden since 2006.
The country voted in a non-binding referendum in 1980 to phase out Sweden's 12 nuclear reactors by 2010, but that target was abandoned in 1997 after officials acknowledged that there would not be sufficient alternative energy sources to replace the nuclear output.
Instead, the government agreed to phase out nuclear power over the course of about three decades by not replacing the aging reactors.
The government said no state money would be provided for nuclear projects.
"Swedish electricity production currently stands on only two legs -- hydro power and nuclear power. The climate issue is now in the spotlight and nuclear power will therefore remain an important part of Swedish electricity production in the foreseeable future," the government said as it announced a climate package featuring a number of lofty goals.
The plan stipulates that by 2020 Sweden would use 50 percent renewable energy, of which 10 percent in the transport sector, 20 percent more efficient energy, and cut greenhouse gas emissions by 40 percent.
The use of fossil fuels as a heating source would be abolished by 2020, and Sweden's entire vehicle fleet would be independent of fossil fuels by 2030.
Under the plan, Sweden would be carbon neutral by 2050.
The current four-party government in power since October 2006 has been divided on the issue of nuclear power, with the junior Centre Party, formerly agrarian, fiercely opposed.
However, pressure mounted on party leader Maud Olofsson last week when the Christian Democrats switched sides on the issue, joining the Moderates and the Liberal Party in calling for the ban to be lifted.
After a top secret party meeting on Wednesday evening, the Centre Party announced it too had completed a policy switch, although Olofsson characterized the shift differently following the government's announcement.
"The Centre Party has not changed its opinion when it comes to nuclear power, but we can live with the fact that nuclear power will be a part of Swedish electricity production in the foreseeable future," she told the TT news agency.
"We didn't want to build new reactors, but three of us do and I respect that. They respect that I don't like nuclear power."
Olofsson said Thursday was a "historic day", as the "four parties take a step toward a sustainable society."
But the left-wing opposition lamented the announcement.
"We agree that nuclear power belongs to the past," Left Party leader Lars Ohly said.
The Social Democrats, which have governed Sweden for all but 11 years since 1932, called the decision "shortsighted" and "not a serious basis for discussions," in a statement.
On Saturday, party leader Mona Sahlin told reporters: "I'm convinced that the future of Swedish energy policy is not called nuclear power."
Given the left's strong opposition, the issue could become a crucial campaign issue when Swedes go to the polls in general elections in September 2010.
Industry meanwhile welcomed the news.
"It is wonderful that the conditions have been created for Sweden to have a more rational and climate-efficient energy policy," the director general of the Confederation of Swedish Enterprise, Urban Baeckström, said in a statement.
"This is a big step forward after all these years of deadlock and endless discussions. But better late than never," Sverker Martin-Löf, the chairman of the board of two energy-intensive Swedish companies, paper maker SCA and steel maker SSAB, told TT.
A poll published a year ago showed 48 percent of Swedes were in favour of the construction of new nuclear power stations, while 39 percent said they were opposed.