The move has been made after a three-month consultation to rein in “greedy councils” accused by communities secretary Eric Pickles of using the method as a “cash cow”.
In September last year, the council denied it made a profit from parking fines and defended its use of the “spy car”, saying it would await the results of a government consultation before making any decisions on its future.
It will now be illegal for councils to issue fines to drivers based solely on CCTV car footage, but authorities will still be able to use them on “critical” routes, such as near schools and bus lanes.
Cllr Linda Thomas, deputy leader of Bolton Council said: “I do think it is a useful tool to have where people park inappropriately, in particular around schools were it can be dangerous for the children.
“I do think Mr Pickles has probably realised that it is an important tool.”
Cllr Nick Peel said: “We only ever used the car as a result of requests from members of the public, in areas where problems were being caused for other motorists.
“This will lead to an increase in complaints from people about double parking and parking around junctions.
“If a traffic warden approaches a person parked illegally they can drive off, which is not a long-term incentive to change their behaviour.”
Mr Pickles said: "CCTV spy cars can be seen lurking on every street raking in cash for greedy councils and breaking the rules that clearly state that fines should not be used to generate profit for town halls.
"Over-zealous parking enforcement and unreasonable stealth fines by post undermine the high street, push up the cost of living and cost local authorities more in the long term.”
Bolton Council will also be forced to publish how their income from parking charges is used, which it has previously said “goes back into traffic schemes and improving the road network”.
There has been a marked increase in the use of CCTV to enforce parking regulations since it was introduced under Labour in 2004, and nine million parking fines are now handed out by local authorities in England every year, raking in £1.3 billion in 2010.
The ban is being introduced to rein in "over-zealous parking enforcement practices", which the government says has forced people to shop in out-of-town centres or online.
Transport secretary Patrick McLoughlin said: "These measures will deliver a fairer deal for motorists, ensuring that parking enforcement is proportionate, that schoolchildren are protected and buses can move freely, and that key routes are kept clear."
Other measures being introduced include trialling a 25 per cent discount for motorists who lose an appeal against a parking ticket and no longer fining drivers parking near broken meters if there is no other way to pay.