The country's most famous convert to Rome will be bestowed with the title "Blessed" after the Pope signed a decree, stating that the healing of a man's serious back condition was down to his intercession.
The pontiff, who has long admired Cardinal Newman's writings, may make an historic state visit to Britain after the beatification ceremony next year.
Cardinal Newman could then be canonised if a second miracle is attributed to him.
He would become the first British saint since St John Ogilvie, a Scottish martyr, was canonised by Pope Paul VI in 1976.
The last English saints, 40 martyrs of the Reformation, were canonised in 1970.
Archbishop Vincent Nichols, the newly installed leader of the Catholic church in England and Wales, said: "I am delighted to learn this news, which will be warmly welcomed by Catholics around the world.
"To have Cardinal Newman among the Blessed is an occasion of great thankfulness to the Lord and of great pride to those associated with him in Birmingham and in Oxford. I am sure he will help us greatly in the task of protecting the Faith amidst the difficulties he foresaw so clearly."
Cardinal Newman, who was born in 1801, was ordained as a Church of England priest and went on to found the Oxford Movement but converted to Roman Catholicism in 1845.
He was later made a cardinal and after he died in his room at the Birmingham Oratory at the age of 89, more than 15,000 people lined the streets for his funeral.
The "cause" for his sainthood was opened in 1958 and he was declared "Venerable" by Pope John Paul II in 1991 after his life of "heroic virtue" was recognised.
The first miracle attributed to him took place in 2001 when Jack Sullivan, a Catholic deacon from Massachusetts, recovered from a serious spinal disorder after praying to Cardinal Newman.
Doctors and theologians in Rome judged that he was cured as a result of his prayers, and now the Pope has declared his healing to be a true miracle.
After Cardinal Newman is beatified, likely to take place next year, a second miracle must be put down to his intercession before he can be canonised.
Mr Sullivan said: "Upon hearing of the recent developments in Rome regarding Cardinal Newman's Cause for Beatification, I was left with an intense sense of gratitude and thanksgiving to Almighty God and my intercessor Cardinal John Henry Newman. I have dedicated my vocation in praise of Cardinal Newman, who even now directs all my efforts."
The Procurator General of the Oratory, Father Edoardo Cerrato, added: "On behalf of the eighty-two houses of the Oratory of St Philip Neri, Newman's own Congregation, I welcome this decision with joy and look forward to the ceremony of Beatification with great anticipation."
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