David Cameron is to allow ministers to campaign for either side in the referendum once a deal is reached on the UK's relationship with the EU.
UK's PM said the UK government would make a recommendation to the British people on which way to vote in the referendum.
But he told MPs "it will be open to individual ministers to take a different, personal decision while remaining part of the government".
The referendum on whether the UK stays in the EU will be held before 2018.
A number of cabinet ministers are thought to favour an out vote, with Mr Cameron expected to campaign for Britain to remain in the EU, although he has said he rules nothing out if he does not get what he wants from his renegotiations.
If the PM had decided to insist on collective cabinet responsibility, he would have been forced to sack ministers who disagreed with him.
Mr Cameron told MPs: "Ultimately, it will be for the British people to decide this country's future by voting In or Out of a reformed European Union in the referendum that only we promised and that only a Conservative-majority government was able to deliver."
Asked by Labour MP Emma Reynolds why it was not possible for him to persuade his own ministers to back him, he said: "The entire government is signed up to the position of having a successful renegotiation and having a referendum and everybody backs that plan."
But he added: "There are people who have longstanding views about the European issue and... it's never been my intention to strongarm people into voting for a position that they don't agree with".
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