Hundreds of whistleblowers have been silenced by the clauses in severance packages to stop them highlighting facts that will embarrass hospitals.
Health secretary Jeremy Hunt told the Daily Mail "the era of gagging NHS staff from raising their real worries about patient care" must end.
Hunt said he hoped the ban would help create a culture of "openness and transparency".
Staff leaving the health service will instead have a new legal right that allows them to speak out about issues in the public interest, such as death rates or poor care.
Hunt has already written to every NHS Trust to make clear he believes gagging clauses are illegal and not in the spirit of the health service.
The Treasury and the Department of Health have to sign off compromise agreements when staff leave to make sure they are value for money for the taxpayer.
The change will mean that in future only contracts including a specific clause that states employees are not blocked from whistleblowing will be given the go ahead.
Almost £15 million was reportedly spent on compromise agreements for NHS staff over three years, of which 90% contained clauses to stop staff speaking out.
Hunt said: "There has been a culture where people felt if you speak up about problems in the NHS you didn't love the NHS. Actually it's exactly the opposite.
"We are now saying we won't approve any compromise agreements with a confidentiality clause that prevents people speaking out about patient safety or patient care.
"We will make sure there is a specific clause in them saying that nothing in them can prevent people speaking out."
The approach has been highlighted by the case of Gary Walker, former chief executive of United Lincolnshire Hospitals Trust, who claimed he was sacked after raising concerns.
Walker says he was paid £500,000 to keep quiet but broke his silence last month and now fears financial ruin if he is sued for breach of contract.
Dean Royles, chief executive of the NHS Employers organisation, said: "We support initiatives that help create a climate of openness and transparency. NHS organisations know how crucial this is for building public confidence.
"Significant progress has been made in recent years to improve procedures for staff to raise concerns and the vast majority of NHS staff say they know how to and feel safe to do so. We want this to be the case for all our staff.
"NHS staff must have absolute faith in effective procedures.
"Compromise agreements remain a valuable tool for both employers and employees and can be used in sensible and legitimate ways that reduce costs to employers, help ensure value for money and meet the interests of patients and the public."