The bursary will be made up of a guaranteed payment of £1,200 a year to 12,000 of the most vulnerable young people including children in care and teenagers living away from their parents.
The rest will be given to schools and colleges to distribute as a discretionary fund to students who face financial barriers to participation such as transport or equipment costs.
Under EMA, students received a maximum of £30 a week, at an annual cost of more than £560m.
Education Secretary Michael Gove said: "Sadly, we have been falling behind other nations in our educational performance. We have one of the most unequal education systems in the developed world.
"Today we are providing targeted financial support for the most vulnerable 16- to 19-year-olds. £180m will be available for this bursary fund – enough to ensure that every child eligible for free school meals who chooses to stay on could be paid £800 per year – more than many receive under the current EMA arrangements."
But shadow education secretary Andy Burnham described the announcement as "chaotic". "Michael Gove has slashed funding for young people who need help to stay on in education," he said. "This is yet another chaotic announcement from the Education Secretary. From school building to school sport it's the same old story – no consultation, botched decisions and no grip on the detail.
"We also need to know where this money has come from – will we see further cuts to other parts of the education budget to pay for this? If it is additional money from the Treasury then why on earth wasn’t it in last week’s Budget?"
Students currently receiving the EMA who successfully applied for EMA in 2009/10 will continue to receive payments at the same level until the end of the 2011/12 academic year. Young people now in their first year of post-16 study who were in receipt of the maximum weekly EMA payment of £30 will be eligible for £20 for each week they are in education or training until the end of the 2011/12 academic year.
Seyi Obakin, chief executive of youth homelessness charity Centrepoint, said the fund for the most vulnerable young people is welcome. "I know this will mean that further education will now be a real possibility for the homeless young people that Centrepoint helps every day," he said
The government will now begin an eight-week consultation on the scheme with finalised details on allocations to be made to learning providers in time for the 2011/12 academic year.
