Transgender people will also be able to chose their legal sex more easily as part of the shake-up announced by Education Secretary Justine Greening.
Fears over infections being passed on through donations from gay men led to an outright ban at the height of the Aids epidemic but that was cut to 12 months in 2011.
Medical advances mean the time limit will now be reduced again under plans for the NHS in England.
Ms Greening, who is also equalities minister, said the Government was building on the progress on tackling prejudice made in the 50 years since the partial decriminalisation of homosexuality.
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"This Government is committed to building an inclusive society that works for everyone, no matter what their gender or sexuality and today we're taking the next step forward," she said.
"We will build on the significant progress we have made over the past 50 years, tackling some of the historic prejudices that still persist in our laws and giving LGBT people a real say on the issues affecting them."
Reforms making it easier for transgender people to chose their sex legally by removing the need for a medical diagnosis of gender dysphoria and speeding up the bureaucratic process will go out to consultation in the autumn.
Ms Greening said she wanted to cut the stigma faced by transpeople, who have to provide evidence that they have been in transition for at least two years before they can apply to legally change their gender.
It comes after Prime Minister Theresa May earlier this week indicated she was preparing to reform the Gender Recognition Act, saying that "when it comes to rights and protections for trans people, there is still a long way to go".
Suzanna Hopwood, a member of the Stonewall trans advisory group, said: "Reform is one of the key priorities in our vision for removing the huge inequalities that trans people face in the UK. The current system is demeaning and broken.
"It's vital that this reform removes the requirements for medical evidence and an intrusive interview panel, and finally allows all trans people to have their gender legally recognised through a simple administrative process. That's what we'll be calling for during this consultation, and I'm looking forward to seeing the law change soon after."
The Government accepted the recommendations of the advisory committee on the safety of blood, tissues and organs (SaBTO) on changing the deferral periods for blood donations from gay men.
Ethan Spibey, founder of the FreedomToDonate group that has campaigned for reform, said: "Today's announcement from the Government marks a world-leading blood donation policy for gay and bisexual men and the other groups previously restricted. I'm so proud that the work of FreedomToDonate and our supporters will help ensure more people than ever before are allowed to safely donate blood.
"I began this campaign because I wanted to repay the donor who saved my granddad's life after a major operation and this announcement means I'm closer than ever to doing that, with the invaluable help of our team of volunteers, and the charities and organisations FreedomToDonate represents."