Lord Bach, of the Department for the Environment, Food and Rural Affairs, said he and colleagues at the Departments of Education & Skills and Health "have agreed that the scheme has a valuable role to play and should remain unchanged".
The announcement comes much earlier than expected. The government had originally said it would wait until the summer to comment an independent review advising that school milk subsidies should be scrapped.
Lord Bach's statement is a victory for the UK dairy industry, which has leapt to the defence of the £1.5m subsidy in the last two weeks.
An industry-wide meeting, to be hosted by industry association Dairy UK and involving the country's biggest dairy processors, had been scheduled for next Tuesday to discuss a plan for defending the subsidy.
"This is extremely good news for children, parents and schools. The effect of ending this subsidy would have been to deprive needy children of the nutritional benefits of milk," said Jim Begg, director general of Dairy UK.
The report, completed for the government by London Economics, said the £1.5m annual sum paid to provide milk to 1.3m children across 12,000 schools was wasting public money.