Welcoming the first drop since the Department for Education and Employment started producing national figures - in the 1994-95 school year - Education Secretary David Blunkett said the Government remains determined to tackle the problem.
The number of permanent exclusions fell from 12,700 in 1996-97 to 12,300 in 1997-98. Over the same period, the exclusion rate among pupils with special educational needs fell from being eight times as high as the average to seven times as high.
Pupils were excluded in 58 per cent of secondary schools and 6 per cent of primaries. The totals relate to primary, secondary and special schools in England.
The latest figures show that Doncaster and the London borough of Kensington and Chelsea were blackspots in 1997-98, with 0.37 per cent of pupils excluded.
The 3 per cent overall reduction nationally is encouraging news for the Government, which wants to bring the rate down by a third by 2002 .
The DFEE last year announced pound;500m from its Social Inclusion: Pupil Support Grant would be made available to improve pupils' behaviour.
Mr Blunkett said: "There is still much to be done. The years have left a legacy of deep division and inequality. Our social support systems - including the welfare state - have not kept pace with the dramatic changes we have seen in work and family life.
"More than 800,000 young people aged 18-24 are not in education, training or employment."