Taoiseach Enda Kenny has said that a new scheme covering mobility allowances for the disabled is to be drawn up.
Mr Kenny said the current scheme was illegal, discriminatory and not in compliance with the Equal Status Act and the Disability Act.
"We have to make provision for a new scheme where the monies can be spent in respect of people who need them," he added.
Replying to Opposition TDs in the Dáil today, the Taoiseach said the Government and agencies with an expanded remit needed to come together to provide a scheme catering for the needs of people requiring it.
Fianna Fáil leader Micheál Martin said people with serious mobility and disability issues should not be asked to take a cut in income.
Sinn Féin leader Gerry Adams said the Government should reflect on the matter and stop discriminating against citizens with disabilities.
Independent TD Mattie McGrath, on behalf of the Technical Group, said there had been no increase in the level of support for disabled drivers since 1987.
Earlier, Minister of State Kathleen Lynch said the Government was unable to maintain two allowances for disabled people without breaking the law,
Yesterday, the Department of Health confirmed mobility allowance and motorised transport grants would be scrapped despite Ombudsman Emily O'Reilly's recommendation for them to be widened.
Ms Lynch said this morning that if the schemes were to comply with the Equal Status Act they would have to be opened up to a much wider group of people at a cost of between €170 million and €300 million.
"The facts are that if we keep this scheme going as it now exists it will be opened to everyone over 65 and who within the Disability Act is defined as having a disability, we cannot afford that," she told RTÉ's Morning Ireland.
She said the Government had "agonised" over the decision for the past two years and was "conscious of the hardship that this will impose on people".
Campaign groups have strongly criticised the cuts, with the Disability Federation of Ireland calling the Department of Health "a sick bureaucratic monster".
Speaking also on Morning Ireland the federation's chief executive John Dolan said there was no consultation or engagement before the department made the decision.
"Out of the blue comes a statement that people who are living on less than €200 a week… will have that taken away. That's up to a 20 per cent cut."
The Government, he added, needs to "get to grips" with the department, which he accused of taking the "Bart Simpson approach" by always blaming others for its own problems.
Age Action, meanwhile, said the Government must act urgently to provide a replacement scheme. "These schemes have been in breach of equality legislation since the Equal Status Act was introduced 13 years ago," a spokesman said.
"If the Government failed to address the age discriminatory aspect of these schemes since 2000, we believe it is not appropriate at this stage to end the scheme within four months while work continues on a replacement scheme."
Centre for Independent Living chief executive Gary Lee said the cuts "amounted to an appalling attack on the rights of people with disabilities, it will result in many being effectively confined to their own homes, unable to participate in the community".
Some 4,700 people a year receive a mobility allowance, with 300 getting a motorised transport grant. They will continue to receive the support for the next four months.