The government has outlined plans to stop direct development aid to 16 countries and freeze the level of assistance given to India.
But there will be more for Bangladesh, Nigeria and Pakistan as aid is "tightly focused" on those most in need.
International Development Secretary Andrew Mitchell said the changes showed "compassion" as they would help the world's poorest people.
Labour said there must be "no slipping back" on overall spending on aid.
The Department for International Development's overall £7.8bn budget has been unaffected by the government's deficit-cutting measures.
But the UK will stop direct aid to 16 countries, including Russia, China, Vietnam, Serbia and Iraq. Some, such as Vietnam and Bosnia, are seen to have "graduated" out of poverty.
Others are judged to be adequately served by United Nations agencies.
Five countries will have their budgets increased substantially: Ethiopia, Bangladesh, Nigeria, the Democratic Republic of Congo and Pakistan.
In a statement, Mr Mitchell told the House of Commons: "We have decided to focus British aid more tightly on countries where Britain is well-placed to have a significant long-term impact on poverty."
He said the funding changes would be a "phased process".
Mr Mitchell added: "I believe that the millions of pounds given around the world will make this country proud."
He praised British "generosity, compassion and humanity", saying spending on aid was "not only from the British people but for the British people. It contributes to building a strong, more prosperous and safer world".
Funding to nine aid organisations, including Unicef, would increase, as they "had a proven track record of delivering excellent results for poor people", Mr Mitchell said.
For Labour, Shadow international development secretary Harriet Harman welcomed the government's decision to stick with the commitment of spending 0.7% of national income on overseas aid.
She told MPs: "As things change in the world - as we are seeing in North Africa and the Middle East - it's right to review our aid programme.
"But what should not and must not change is the commitment to spend 0.7% of our national income on aid by 2013. There must be no slipping back on that."
Ms Harman added: "He's got to be strong and stop his ministerial colleagues using DfID [the Department for International Development] as a hole in the wall."
David Loyn, the BBC's international development correspondent, said: "The government is keenly aware of its political vulnerability in ring-fencing the international development budget while cutting spending everywhere else except for health, and it wants to ensure that it is getting value for money."
India is currently one of the biggest recipients of UK development aid, and there have been media campaigns in the UK suggesting an economy growing at nearly 10% a year simply does not need British assistance.
But others point out that nearly half a billion people in India - more than in any other country in the world - are still desperately poor.
The government says the new approach will be more effective in cutting poverty, and assist in reaching the Millennium Development Goals by the target date of 2015.