Taxi drivers have won their campaign to prevent an unlimited number of cabs on city streets.

The Government has thrown out proposals to deregulate the trade after cabbies turned out in their hundreds to protest.

Drivers in Brighton and Hove were at the heart of the campaign, with 270 causing traffic jams in protest as they joined a go-slow procession on the seafront.

They disagreed with the Office of Fair Trading's recommendation that deregulation - allowing councils to issue as many licences as they wanted - would encourage lower fares and more cabs on the street as well as shorter waiting times.

Instead they believed an effective free-for-all would have caused chaos.

Cabbies feared illegal ranks would spring up and those who could not compete would face bankruptcy.

Taxi drivers lobbied MPs, warning of gridlock, fare hikes and reduced passenger safety.

They also feared drivers would be on the streets without proper insurance and councils would struggle to cope with increased pressure to check their backgrounds.

John Oram, of Brighton Streamline Taxis, said: "Everyone was cheering when we heard the news.

"We are pleased the Government has seen sense and not agreed to a free-for-all.

"It would have led to many guys going broke.

"Now Brighton and Hove City Council's policy of sustained growth will continue and there will be a sensible number of cabs on the city's roads."

In Sussex, Lewes is the only major area where licences are not limited.

The ruling means the district council will continue its policy of issuing licences to bona fide applicants.

Brighton and Hove City Council, which supported the taxi drivers' campaign, will continue to issue about five new licences a year. There are now 478.

The authority and all other councils will have to publicly justify why they are limiting numbers.

Consumer minister Gerry Sutcliffe said: "Restrictions on numbers of taxis can be a barrier to market entry, which can lead to lower consumer choice and lower taxi availability.

"But it is important that local authorities are allowed to regulate local taxi markets to take exceptional local circumstances into account.

"That is why we have decided not to remove this power.

"But we're asking them to explain how any imposed restrictions benefit consumers."

The Department for Transport will issue guidance to local authorities asking them to review any taxi licence restrictions by March 31, 2005, and lift the restrictions where they cannot be justified.

Restrictions that are justified will have to be reviewed every three years and the results published.

The Transport and General Workers' Union welcomed the news.

Deputy general secretary Jack Dromey praised the Brighton taxi drivers who drove in procession along the seafront, sounding their horns.

He said the protest was part of the "articulate and well-informed" voice of the nation's taxi drivers.

He said: "It was part of the challenge that will now see us work constructively with local councils to ensure safe, quality and value-for-money taxi services become integral parts of local transport plans.

"The union and taxi drivers in Brighton feel vindicated today.

"We said deregulation had not delivered for the bus industry and there was no evidence to suggest it would for local taxi services.

"Our members locally will now work to make sure the campaign's success is translated into action."

Mr Dromey said concerns remained over what the Government meant by a reference in its statement to "better information to enable consumers to negotiate lower fares".

He said: "The prospect of taxi drivers in Brighton facing angry crowds on a Saturday night looking to haggle over the fare is not one to be relished.

"We accept fares need to reflect value for money for the consumer but they must also be at a level for drivers to earn a decent living.

"Ministers should make it clear exactly what they mean."