Leading children's author Philip Pullman and former poet laureate Sir Andrew Motion were among the writers to speak out after it was announced that Booktrust was to lose its annual 13m Government grant.
But in a joint statement, the Department for Education (DFE) and Booktrust said that the DFE would now continue to finance the programme which benefits 3.3 million children a year in England.
"The Department for Education and Booktrust are determined to ensure that reading for pleasure is a gift every child can enjoy. That is why the DFE will continue to fund Booktrust book-gifting programmes in the future," the statement said.
"Although the current contract will end in April the department is talking to Booktrust about how to develop a new programme which will ensure that every child can enjoy the gift of books at crucial moments in their lives while ensuring we develop an even more effective way of supporting the most disadvantaged families to read together.
"The department and Booktrust will be working together, with publishers, in order to ensure that we can make every possible saving in developing an enhanced programme."
The apparent U-turn comes hard on the heels of Education Secretary Michael Gove's hurried retreat over plans to axe funding for the School Sports Partnership scheme in England, which had been slated to close.
Sir Andrew described scrapping the grant as an "act of gross cultural vandalism" while Pullman – the author of the His Dark Materials trilogy – accused the Government of "wanton destruction".