The Guardian newspaper reported Education Secretary Nicky Morgan would call for secondary schools in England to be required to teach pupils in different classes depending on their ability.
"Setting" means pupils are taught in separate ability groups for individual subjects - unlike "streaming" in which year groups are divided across all academic subjects.
The suggestion had been that Ofsted would be used to implement this by making the use of setting obligatory for schools to be graded as outstanding.
The idea of compulsory setting had provoked a negative response from the ATL teachers' union.
"If Nicky Morgan is committed to closing the gap for disadvantaged children, the last thing she should do is to divide children into ability sets and to use Ofsted to enforce this," said Ms Bousted, the union's general secretary.
"This is educationally unjustifiable. The evidence is overwhelming that this practice holds back poor children, denying them access to an appropriately demanding curriculum.