The State Council, China's cabinet, said people were using too many plastic bags and are not disposing them properly, wasting valuable oil and littering the country.
'Waste of energy'
"While providing convenience to consumers, they have also caused serious pollution, and waste of energy and resources, because of excessive use and inadequate recycling," the notice said.
"We should encourage people to return to cloth bags, baskets for their vegetables"
Statement from China's State Council
In addition, the council suggested tax adjustments to discourage the production and sale of plastic bags, and encourage the recycling industry while urging rubbish collectors to separate plastic for reprocessing.
"We should encourage people to return to carrying cloth bags, using baskets for their vegetables."
The new regulation comes 15 years after shopkeepers started handing out cheap, flimsy plastic bags.
A similar move last year to ban free plastic bags in the southern town of Shenzhen sparked a public controversy, with shopkeepers complaining that customers might be turned away.
The government was even accused of shifting the cost of environmental protection on to residents.
Laws to cut back on the use of plastic bags have been implemented in several countries including parts of South Africa, Ireland, Taiwan and Bangladesh.
The authorities in these countries either tax shoppers who use them or impose fees on companies that distribute them.
In Bangladesh, the ban on plastic bags was imposed in 2002 and correspondents say it has been taken up by about 60 per cent of consumers who have reverted to using bags made of jute, paper, cloth and other environmental-friendly material.
The ban was introduced after authorities blamed waste plastic bags for blocking drains, resulting in widespread flooding.
A similar ban has been enforced in several villages in the US state of Alaska, while last year San Francisco became the first US city to ban petroleum-based plastic grocery bags.