It "will be replaced with a system based on employment contracts," as part of a package of labour reforms, said a statement released at a press conference in Doha.
Sponsorship systems for foreign workers exist in most Gulf countries, which employ millions of foreigners, especially from Asia. The system has been strongly criticised by human rights groups and likened to modern-day slavery.
The reforms will also end the longstanding requirement that foreign workers obtain their employer's consent before leaving the country.
The new system will automatically grant an exit permit to an employee "after a 72-hour grace period prior to departure," the statement said.
The government will also raise the fine for employers who confiscate the passports of foreign workers to 50,000 rials (USD 13,580) from the current 10,000 rials, in a bid to stamp out the illegal but still common practice.
Foreign workers will also be able to change job at the end of their contract, without the need for the certificate they currently require that their previous employer has no objection.
Qatar's treatment of its massive foreign workforce has been under the international spotlight as it launches a massive construction programme for the world football showcase in 2022.
Amnesty International charged that the tens of thousands of migrant workers building the multi-billion-dollar World Cup infrastructure were being treated like "animals", with hundreds dying on the construction sites, and launched a campaign for wholesale reforms.
Qatar has rejected claims that construction workers are being mistreated but has announced a series of measures to improve workplace safety and workers' conditions.
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