Prisoners in Britain will be allowed to vote following a decision by the government to drop its legal fight with the European Court of Human Rights, a report said on Tuesday.

The government is expected to tell the Court of Appeal on Wednesday it will change the law after legal advice that failing to do so could cost the taxpayer hundreds of millions of pounds in compensation, the Daily Telegraph paper said.

Britain has fought a six-year legal battle to prevent the law change after the European court ruled its ban on all prisoners' right to vote was discriminatory following a challenge by convicted axe-murderer John Hirst.

The Telegraph reported that the Conservative party, the senior partner in the coalition government, was deeply unhappy with the decision but hopeful that Britain's judges could still play a major role in deciding who will vote.

"This is the last thing we wanted to do but we have looked at this from every conceivable angle and had lawyers poring over the issue," the paper quoted an unnamed senior government source as saying.

"There is no way out and if we continued to delay then it could start costing the taxpayers hundreds of millions in litigation."

Prime Minister David Cameron was "exasperated" and "furious", according to other senior government sources quoted by the paper.

There was no official confirmation of the decision to drop the ban, but a representative of the government is expected to signal the move in a statement to the court of appeal tomorrow.

Ministers are reportedly exploring ways of controlling who will benefit from the law change and are expected to push for a continued ban on the right to vote for murderers.

Juliet Lyon, director of the Prison Reform Trust, welcomed the government's decision.

"In a modern prison system you would expect prisoners to have rights and responsibilities," she said. "People are sent to prison to lose their liberty not their identity."

No decision is thought to have been taken on exactly how the change will be implemented and which inmates are to be given the right to vote.