Hospitals, schools and government departments will be banned from handing over cash to hackers.
New plans will also see new measures to tackle ransomware, which has been blamed for the death of an NHS patient last year. The Government says the move will make public services less attractive targets for online crooks.
Businesses will also be required by law to report if they opt to pay a ransom to cyber criminals. Security Minister Dan Jarvis said this would bring cases "out of the shadows".
In an update to MPs he said: "Ransomware is the most significant cyber crime threat of our time." Recent high profile cases include a strike on the British Library and an attempted cyber attack on the Co-op in April this year.
And hacking group DragonForce demanded millions of pounds from Marks & Spencer after malicious software obtained a wealth of data. The company estimates the extortion effort has cost it around £300million.
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Giving evidence to MPs earlier this month, M&S chief Archie Norman claimed two hacks involving “large British companies” had gone unreported in recent months. He called for a legal obligation to report cases.
Mr Jarvis said: “Ransomware is a predatory crime that puts the public at risk, wrecks livelihoods and threatens the services we depend on." He continued: “By working in partnership with industry to advance these measures, we are sending a clear signal that the UK is united in the fight against ransomware.”
Ransomware is software which is used maliciouslyto access victims’ computer systems. Systems and data can be encrypted, or data stolen, until a ransom is paid.
In June an investigation into the death of a patient at King's College Hospital NHS Foundation Trust concluded that a cyber attack had contributed to a patient's death. It found "a long wait for a blood test result" which affected their treatment.
Co-op chief executive Shirine Khoury-Haq said: “We know first-hand the damage and disruption cyber-attacks cause to businesses and communities. That’s why we welcome the Government’s focus on Cyber Crime.
“What matters most is learning, building resilience, and supporting each other to prevent future harm. This is a step in the right direction for building a safer digital future.”
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