The move, which will mean a Pounds 4m EU rebate for the Government could force up the price of school meals as councils spend more on milk for catering.
Prices of drinking milk will almost certainly rise for secondary pupils though primary schools will continue to benefit from the subsidies.
Member states are free to opt out of parts of the EU's milk subsidy scheme (all must accept subsidised milk for primary pupils). The UK opt-out will reduce the Pounds 20 million scheme to Pounds 14m. But groups campaigning against the cut believe the small Pounds 4m rebate does not justify the risks.
John Fowler, assistant education secretary at the Association of Metropolitan Authorities, said: "While the Government gains Pounds 4m, the health of our children suffers."
The cut marks a turnaround in Government policy, particularly for Gillian Shephard, the Education and Employment Secretary. Two years ago, as agriculture minister, Mrs Shephard convinced the EU that Britain's school catering sales should remain subsidised.
Local authorities claim the end of the subsidy will cost them Pounds 150, 000 if they continue to provide cheap milk.
But, according to the Ministry for Agriculture, Fisheries and Food, the decision was driven by the fact that not all local authorities claimed the subsidies. Councils responded by saying that complicated EU bureaucracy made it difficult to claim.
A campaign against the decision, set up by the National Dairy Council and the Dairy Industry Federation, is backed by the National Confederation of Parent Teacher Associations, the Child Poverty Action Group and the National Osteoporosis Society.
The Department for Education and Employment said: "While the decision may lead to an increase in the cost of drinking milk and school meals, withdrawal from the scheme has to be viewed against the extra Pounds 878m announced by the Secretary of State, which will allow an increase of 4.5 per cent in funding for schools."