The A&E department at Lewisham hospital will not close but will be downgraded along with its maternity services, the health secretary Jeremy Hunt has announced.
The changes arrive as neighbouring South London Healthcare NHS Trust (SLHT) went into administration after running up a deficit of more than £150 million over the last three years.
Addressing the House of Commons, Hunt said he rejected original plans to replace Lewisham's A&E unit with an "urgent care" centre, but accepted recommendations that the hospital should have a smaller A&E service with 24/7 senior emergency medical cover.
Around 25,000 people took part in a march in Lewisham over the weekend in protest against the changes to the hospital.
Hunt said that with these changes the hospital will still be able to treat 75 percent of the patients it currently cares for. The other 25 percent, the most seriously injured or sick, will now be dealt with at other hospitals.
The maternity unit will now be downgraded to a midwife-led service, and will in future deal with just 10 percent of the births it currently holds.
Hunt also announced the SLHT, currently losing more than £1m a week, will be dissolved in October. Each of its hospitals - Queen Elizabeth Hospital in Woolwich, Queen Mary's in Sidcup and the Princess Royal in Bromley - will be taken over by a neighbouring hospital trust.
Hunt said: "The longstanding problems at South London Healthcare NHS Trust must not be allowed to compromise patient care in the future. Hundreds of millions of pounds have been spent on paying for debt rather than improving patient care for the local community in south-east London.
"What is in the clinical interests of patients in south-east London has been at the heart of my decision-making process, and as a result I have followed clinical advice to keep open the A&E in Lewisham.
"However, some changes need to be made so that money is spent on patient care rather than servicing historic debt. The decisions I have taken today will ensure that patients in south-east London will be able to rely on the NHS for years to come."
A spokesperson for Lewisham Healthcare NHS Trust said: "We are disappointed today to hear that Jeremy Hunt, Secretary of State, has accepted the proposal to downgrade A&E and maternity services at Lewisham Hospital. He has proposed Lewisham retains a smaller, limited 24/7 emergency department, and a stand-alone midwife-led birth centre.
"Clearly, we need more information on Jeremy Hunt's proposals before commenting in detail. The Trust board response to the consultation was clear - that we believe Lewisham needs full emergency and obstetric services.
"I would like to thank patients, local people, staff, GPs, MPs and partners for the support we have received."
Andy Burnham, the shadow health secretary, said Hunt had "crossed a line" with these proposals and has now "set dangerous precedents" where "the market men are calling the shots" in how to run the NHS.
Sir Steve Bullock, Lewisham's mayor, said the council may take legal action to block Hunt's plans. He said: "The secretary of state is riding roughshod over the people of Lewisham. These plans have been roundly rejected by local people, by the staff who work in the hospital and by local GPs.
"The secretary of state has pressed ahead regardless by downgrading maternity services and emergency services at Lewisham hospital. But let him be clear, this is not the end of the matter.
"I will be talking to our lawyers this afternoon and we will be considering our options. We will not give up."
Defending the move, Hunt said: "There is a strong case that these proposals will lead to improved care and could save up to 100 lives a year."