Redbridge Council's cabinet agreed to a ban on placing children with foster carers who smoke unless there are exceptional circumstances.
The local authority in north-east London said the decision, which will come into force in 2010, was made to protect children from the "damaging effects of passive and second-hand smoke."
Other councils around the country have introduced similar measures, particularly relating to very young children, but Redbridge's ban is thought to be the most far-reaching.
"We know this is a difficult issue because some people will feel it is an intrusion on personal freedoms," said Councilor Michael Stark.
"But we also know that smoking increases the risk of serious illness in childhood. On balance, we have decided children in our care shouldn't grow up breathing second-hand smoke."
The council cited scientific evidence that showed passive smoking caused lung cancer and childhood respiratory disease.
Existing smokers will be told of the new policy and given help to quit.
The Fostering Network, a charity that represents groups involved in fostering, said it believed no child under 5should be placed with carers who smoked.
However the charity, which estimates there is a shortfall of about 10 000 carers, said it did not want potentially good foster parents to be put off because they had an occasional cigarette.
Tobacco lobby groups said the move was part of an "ongoing campaign to stigmatise smokers."
"It's going to exclude people who could be outstanding foster parents," said a spokesperson for pro-smoking group Forest.
"It sends out an insidious message that smokers in general are unfit parents and I don't think any politician has the right to do that."