Ketamine, the horse tranquiliser used as a party drug, is to be upgraded to a Class B banned substance.
Announcing the move, crime prevention minister Norman Baker said he hoped to send a message that the drug is harmful - but at the same time raised questions over the effectiveness of the classification system to control drug use.
Ketamine, also known as Special K, will be reclassified from Class C to B in the face of mounting evidence over its physical and psychological harms.
Government drug advisers have uncovered evidence of users as young as 20 having their bladders removed due to heavy consumption of the drug.
Reclassification will mean the maximum penalty for unlawful possession of ketamine will increase from two to five years in jail, while the maximum penalty for trafficking offences will continue to be 14 years imprisonment.
But speaking at a drug treatment centre in west London, Mr Baker said: "I'm not sure in the very long term that the present system is a perfect one for drug control."
He went on: "What I do think is in the short term there's a message that needs to be sent on ketamine. In terms of where we're going in 20 or 30 years time, in terms of the optimum method of minimising drug use then I'm not sure.
"It certainly after all hasn't stopped drug use by classification. But what it does do is send a message to those who are interested.
"You have to assume some drug users actually care about their bodies, therefore saying to them this is more dangerous than that, what they will take into account and what they will actually do."
He went on: "The classification has a value in giving a steer to people at the very least. However, people still take drugs and are still getting convicted for having them."
"It's better to send a signal than not to send a signal."
The move comes as the father of 18-year-old Ellie Rowe, who died after taking ketamine, told an inquest in Winchester, Hampshire, how "one act of stupidity has destroyed our family".
Miss Rowe, from Glastonbury, Somerset, took the drug while attending the Boomtown Fair festival in Winchester last summer.
Mr Baker added: "Some substances, the long term consequences are not apparent when you first ingest it or take it, particularly in this case, the damage to the bladder.
"The impact on young people and fact that it appeared not to be immediately apparent to people, I thought it was right to reclassify that."
The minister, who was moved to the Home Office from the Department for Transport in October's coalition reshuffle, has previously shown sympathies to arguments in favour of legalising or decriminalising cannabis.
But he denied his stance on ketamine gave a "mixed message".
"I'm led by the evidence, where the evidence takes you is where you end up going," he said. "Anyone who says we should legalise every single drug is naive, and everyone who says we should have everything as a Category A drug is also naive."
He added: "That doesn't necessarily mean the classification and the approach is always right. It doesn't mean that."
"I wanted to go forward on the evidence base, wherever that takes you. It's not a sort of philosophical view. I'm not taking a libertarian view that everybody should be able to do what they want and we'll all have flowers in our hair and let it all hang out.
"But nor am I taking the view that we should be locked up and throw away the key.
"What helps is sensible analysis of the position and wherever that takes you," he said. "That may take you to an uncomfortable position."
Originally designed as an anaesthetic and tranquilliser, often used on horses during veterinary surgery, ketamine was banned as a recreational drug in 2006.
An estimated 120,000 people misused the drug in England and Wales during 2012/13, figures suggest.
In March 2012, Home Secretary Theresa May commissioned the Advisory Council on the Misuse of Drugs to refresh its advice on ketamine, which was last reviewed in 2004. The council recommended in December that the drug is reclassified to Class B.
Earlier, a report warned u sers of legal highs they are "dancing in a minefield" after a huge surge in the number of deaths linked to the substances.
The number of cases in which novel psychoactive substances - otherwise known as legal highs - were identified as the cause of death rose from 10 in 2009 to 68 in 2012, according to data published in the National Programme on Substance Abuse Deaths (NPSAD) report, compiled by experts at St George's, University of London.
The figures, which include Scotland and Northern Ireland, as well as England and Wales, also show the prevalence of the drugs in post-mortem toxicology tests increased from 12 in 2009 to 97 in 2012.
Professor Fabrizio Schifano, spokesman for the NPSAD, said: " The worrying trend is that these type of drugs are showing up more than ever before. Clearly this is a major public health concern and we must continue to monitor this worrying development.
"Those experimenting with such substances are effectively dancing in a minefield."
Miss Rowe's sister Iona, 20, said the family was pleased that ketamine had been reclassified.
She said: "The family supports it, we just hope it raises awareness of the seriousness of the drug."
She added: "When you are taught at school the grade system, there's quite a lot of drug education now, it's being told that something is a particular class that sticks."
Mr Rowe added: "It's psychological, it's in the perception of the drug, the actual act of upgrading would give that message."