The tougher approach was announced by secretary of state for culture Andy Burnham as the DCMS published its Licensing Act review.
Burnham said: "We will change the offence of persistently selling alcohol to a person under 18 from three strikes to two strikes in three months."
The offence of persistently selling alcohol to children was introduced into the Licensing Act through the Violent Crime Reduction Act 2006.
Currently, retailers selling alcohol to children three times in three months can be found guilty of the offence, but the government will now change that to two occasions.
Penalties currently include a fine of up to £10,000, suspension of premises licence of up to three months and 48-hour closure by police.
However, Burnham indicated authorities could take a tougher stance in future. "This means that any seller who twice sells to under-age drinkers and is caught doing so will immediately lose their licence," he said.
The government's review concluded that the introduction of the Licensing Act had "not led to the widespread problems some feared", Burnham said. Extending opening hours had led to greater convenience for shoppers, he added.
Burnham said the government thinks authorities should use the Act's powers more extensively to tackle alcohol-related problems.
"There is a need to rebalance action towards enforcement and crack down on irresponsible behaviour," he said. Other measures will include tougher sanctions on licensees who breach their licence conditions and more focus on identifying problem hot spots.
WSTA chief executive Jeremy Beadles said: "We welcome the government's recognition that 24-hour licensing has had a largely positive impact. The review is a balanced assessment of a policy that has given the vast majority of us a freedom enjoyed elsewhere in Europe for years."