Energy firms were under pressure to cut prices after the UK's biggest supplier slashed domestic bills by up to 17%.
Consumer groups welcomed the first British Gas price cuts since 2000 and called for its rivals to follow suit.
The firm will reduce its standard tariffs for gas by 17% and electricity by 11% from March 12. It will bring the average annual dual fuel bill for British Gas customers down by £167 to £953, the firm said.
The cuts are the result of wholesale gas prices falling by nearly 50% in the past year.
Liberal Democrat trade and industry secretary, Susan Kramer MP, said the British Gas reductions were good news for consumers.
"However, this should form the first part of a downward trend in bills, rather than a one-off reduction," she said.
"Wholesale gas prices have fallen and new pipelines should ensure a much better supply. These benefits must continue to be passed on to consumers."
Rival energy supplier Powergen responded to the British Gas announcement by pledging to cut domestic energy prices in the near future.
Scottish & Southern Energy, which operates brands including Southern Electric, recently told its customers that it expected to cut its prices.
British Gas had increased gas prices on seven occasions since 2002, with electricity tariffs rising six times. It last cut prices in spring 2000. Its parent company Centrica said the cuts were the result of average wholesale gas prices falling by nearly 50% since last year.
