It comes amid concerns about the 30-year old coin’s vulnerability to counterfeiting, with an estimated 45 million forgeries in circulation.
The new coin is based on the design of the old 3d (three penny) piece, or threepenny bit, a 12-sided coin in circulation between 1937 and 1971.
A competition will be held to decide the image on one side of the coin.
The Royal Mint, which believes 3% of existing £1 coins are fake, said the move would increase “public confidence” in the UK’s currency and reduce costs for banks and other businesses.
The announcement comes as Chancellor George Osborne prepares to deliver his fifth Budget on Wednesday.
The current £1 coin was introduced in 1983 as part of the phasing out of the one pound note, which was ultimately withdrawn five years later.
Of the 1.5 billion coins estimated to be in circulation, as many as two million counterfeit ones are removed every year.
The government said the existing coin had been in existence longer than most others and that its technology was no longer suitable to combat increasingly sophisticated counterfeiting techniques.
The proposed new coin will be roughly the same size as the current one and will be based on the once popular three pence piece that disappeared after decimalisation in the early 1970s.
As well as its unique shape, the new coin will be made in two colours and will incorporate state-of-the-art technology to ensure it can be quickly and automatically authenticated at all points.
While the Queen’s head will be on the obverse side of the coin, as it is on all legal tender in the UK, the Treasury has said there will be a public competition to decide the image on the other other side.
Government sources said the time was right to “retire” the existing £1 coin and using the threepenny bit as inspiration for its replacement was a “fitting tribute” to such an iconic design.
“With advances in technology making high value coins like the £1 ever more vulnerable to counterfeiters, it’s vital that we keep several paces ahead of the criminals to maintain the integrity of our currency,” they said.
Adam Lawrence, the chief executive of the Royal Mint, said the process could change the way coins were made in the future.
“The current £1 coin design is now more than 30 years old and it has become increasingly vulnerable to counterfeiting over time.
“It is our aim to identify and produce a pioneering new coin which helps to reduce the opportunities for counterfeiting, helping to boost public confidence in the UK’s currency in the process.”
The Bank of England, which earlier this year announced that banknotes would be made out of plastic rather than cotton from 2016, said the move would “enhance the security and integrity of the currency”.