The NHS trust where hundreds of patients were found to have died needlessly will be dissolved, the Health Secretary has said.
Jeremy Hunt has announced that Stafford and Cannock Chase Hospitals would retain 90% of patient visits but they would now be operated by neighbouring NHS trusts.
In a partial victory for campaigners supporting Stafford Hospital, Mr Hunt suggested the hospital could keep its consultant-led maternity service depending on an NHS England review.
It had initially been recommended the maternity unit should be closed and then that it should be downgrade it to a midwife-led unit.
Up to 1,200 people were found to have died unnecessarily at Stafford Hospital between 2005 and 2008 in one of the biggest NHS scandals.
An inquiry into the number of deaths at the hospital carried out by Robert Francis QC last year found there had been "appalling and unnecessary suffering of hundreds of people".
Frank Robinson's son John died after misdiagnosis at Stafford Hospital Patients there were found to have been left in their own faeces, given the wrong medication and were so thirsty then drank water from flower vases.
The Mid Staffordshire NHS Foundation Trust has been in administration since April and administrators had recommended to Mr Hunt that it was neither clinically nor financially viable.
In his statement Mr Hunt said: "Local people suffered too much for too long under a system which ignored appalling failures of care in their local hospital.
"They now deserve to know that same system has learned the lessons and is guaranteeing high-quality, safe services for local people. The proposals I am accepting today will provide just this."
The statement said: "I want Stafford to be a proper district hospital that continues to meet the needs of patients nearby, including for emergency care and births."
Stafford Hospital will now be under the control of the University Hospital of North Staffordshire and Cannock will be run by the Royal Wolverhampton Trust.
Health Secretary Jeremy Hunt Sue Hawkins, of campaign group Support Stafford Hospital, said of the proposal to keep consultant-led maternity services: "Well, it's something - it's a start.
"What I would say is that you can apply equally the same argument of patient safety used to justify that re-think to paediatric care, so we would ask for the downgrade of paediatrics to be re-considered as well."
She said that because of the scrutiny in the wake of the scandal, Stafford Hospital had now become one of the safest and best in the country.
Heath union chiefs said it was vital that neighbouring trusts were given the finances to deal with the new responsibilities to provide care at the hospitals.
Christina McAnea, head of health for Unison, said: "It is bitterly disappointing for the local community who have campaigned for local services and have rallied behind the hospital, as well as for staff who have worked hard to turn the trust around.
"The facts show that patient care has improved massively and the staff survey, released only yesterday, showed that 73% would now be happy with the standard of care at the hospital if a friend or relative needed treatment - higher than the 65% national average."
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