The ICC has taken note of criticism that the 2004 event in England featured many one-sided matches due to the enlarged field of 12, which included non-Test-playing nations Kenya and the United States.
The Champions Trophy, the second biggest tournament after the World Cup, will now have eight teams split into two groups of four with the top two from each group advancing to the semi-finals.
The eight teams will comprise the top six nations in the ICC One-day table as on April 1, 2006 plus two sides drawn from a qualifying round just prior to the main tournament in October.
The qualifying round will be contested on a round-robin basis by teams placed 7-10 in the ICC table.
ICC chief executive Malcolm Speed said in a statement the new format will be highly competitive for all participating teams.
"After the last Champions Trophy, we sought the opinions of a wide range of stakeholders and conducted a thorough review of the tournament's structure," Speed said on Thursday.
"The new format has addressed the main flaws of the previous 12-team system and we now look forward to an exciting major international event in India."
If the current One-day table had been taken into account, hosts India would not have gained a direct entry due to their seventh place in the rankings.
The present top six are Australia (137 points), Sri Lanka (117), New Zealand (116), South Africa (112), Pakistan (112) and England (106).
The next four in the list are India (97), West Indies (95), Zimbabwe (50) and Kenya (26).
Test nation Bangladesh, placed 11th on 12 points, need major successes over the next nine months to even enter the qualifying round.
The tournament will be held across India just five months before the World Cup opens in the Caribbean in February, 2007.