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Ministers have dropped the threat of sanctions for unemployed youngsters on a controversial work experience scheme.

It follows a meeting with dozens of firms with concerns, after criticism it amounted to "unpaid forced labour".

Some employers had pulled out of the scheme - in which 16- to 24-year-olds on jobseeker's allowance do up to eight weeks' unpaid work but keep benefits.

It is voluntary but those who dropped out after the first week risked having their benefits docked for a fortnight.

The government says that only 220 cases out of 34,200 people taking part between January and the end of November 2011 were sanctioned, and mostly for misconduct, not for dropping out.

But following Wednesday's meeting with firms and charities, it said that rule would be dropped - although sanctions would still apply in cases of gross misconduct.

Employment Minister Chris Grayling said it would help companies but insisted that critics were "completely misguided".

Critics say the scheme amounted to "unpaid forced labour" for many young unemployed people and the Right to Work campaign group had led protests - including a sit-in at a Tesco store.

The work experience programme is one of a range of placement schemes run under the government's "Get Britain Working" policy.

It allows unemployed youngsters to accept short-term work experience placements, which were unpaid but could include travel or childcare expenses, and keep their benefits.

But those who dropped out of the scheme after a probationary period of one week could have had their benefits docked for two weeks.

During Prime Minister's Questions, David Cameron said 200 small- and medium-sized companies had expressed an interest in joining the scheme in recent days.

He urged firms to "stand up against the Trotskyites" protesting against it.

And Work and Pensions Secretary Iain Duncan Smith said protesters were "completely out of touch" and the scheme was "brilliant", adding: "People volunteer to do it and we have a queue of kids desperate to do it."

Chief executive of Barnardo's Anne Marie Carrie, who was at the meeting on Wednesday, told ´óÏó´«Ã½ Radio 4's World At One: "We discussed frankly what has gone wrong in public perception about this scheme.

"Work experience is a vital lifeline for some of the most disadvantaged young people in this country. They've been failed by the education system, they've been failed by the care system and they cannot easily find employment in this tough climate."

She said she was "delighted" at the news that the sanctions would be dropped as she was worried that they could threaten the future of the scheme.

TUC General Secretary Brendan Barber said he welcomed the government's "climbdown" on the issue - and making clear that work experience was voluntary would help safeguard against it being used for "free labour for employers".

And John Longworth, director general of the British Chambers of Commerce, said short work experience placements were a "critical" part of finding a job for thousands of youngsters: "The biggest sanction anyone could face is losing the opportunity to gain experience in the world of work, and this announcement will ensure businesses continue to have the confidence to offer these opportunities."

But Mark Dunk, an activist from the Right to Work campaign, said it was "one battle won but the wider fight goes on".

"Forced unpaid work still continues in the form of the mandatory work activity and community activity programme... There should not be any young person anywhere forced to work for no pay. Everyone on any training scheme should receive minimum wage or above."

Burger King, bookshop Waterstones and electrical retailer Maplin have left the scheme, while Sainsbury's says individual stores which took part are no longer doing so, as it is not company policy.

Tesco says it will start to pay those on work experience and guarantee a job when placements go well, and baker Greggs says it does not want people to lose benefits if they fail to complete their placements.

Fashion chain Matalan has suspended its involvement pending a review.

For Labour, shadow employment minister Stephen Timms said he backed the theory behind the scheme - but said there was a "complete muddle about whether this is a voluntary scheme or not because job centres are telling people it's compulsory".

In a separate development, Boots has stopped some of its stores participating in a different scheme - the government's flagship work programme - aimed at helping the long-term unemployed find jobs. Some stores had been approached locally to provide placements but would no longer be doing so, it said.

Boots said under the terms of the scheme people could lose benefits if they refused to join or did not fully comply, which was in breach of its company policy never to participate in schemes which compel people to work.