The decision follows criticism from heads over the quality of Connexions, created in 2000 as a one-stop-shop for careers advice for all teenagers.
Plans to dismantle it and hand control to Children's Trusts will be spelled out in the youth Green Paper next month.
The trusts, in which LEAs have majority control, were created under the 2004 Children Act to integrate the education and support services for all young people.
A senior government source said: "There are good Connexions services and there are bad. The overall picture is one of inadequacy."
The Government's career service review, due to be published with the Green Paper on February 21, is highly critical. It is described as "patchy" with "poor integration between schools, colleges and Connexions" and "caught up in the social exclusion model while failing to meet wider needs".
The source said there was still a question of funding. "Will the cash be ring-fenced and how much will go to the trusts and how much to schools and colleges?"
John Dunford, general secretary of the Secondary Heads Association, said:
"Every head feels the Connexions service is poor and that money should go to schools and colleges."
Edwina Grant, president of the education directors' association Confed, was expected to say at its winter conference yesterday: "We are mindful of the challenges in the Green Paper. This is likely to ask us to develop good quality independent careers guidance."
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