Welsh pubs, restaurants and cafes will be banned from serving alcohol from Friday and will be unable to open to customers beyond 18:00 GMT.
First Minister Mark Drakeford announced the new rules to tackle a rise in coronavirus cases.
Business groups said the move would devastate Wales’ hospitality industry, with closures “guaranteed”.
Indoor entertainment and visitor attractions, including cinemas, museums and galleries, will also have to shut.
Businesses can offer a takeaway service after 18:00, and if they have an off-licence can sell takeaway alcohol up until 22:00.
The Conservative leader in the Senedd, Paul Davies, said the national approach from the Welsh Government was unfair on areas with low Covid rates.
Plaid Cymru said hospitality was “paying the price” for a lack of stricter measures after the firebreak lockdown ended on 9 November.
Mr Drakeford said without changes there could be between 1,000 and 1,700 preventable deaths over the winter.
The first minister said firms hit by the restrictions would be offered £340m in support which he claimed was “the most generous package of financial assistance anywhere in the UK”.
Mr Drakeford told a press conference: “I know these new restrictions will be difficult, coming as they do at the one of the busiest times of the year for the sector.
“Unfortunately, we continue to face a virus which is moving incredibly quickly across Wales and a virus that will exploit every opportunity when we spend time with one another.”
The case rate has risen from 187 per 100,000 people over seven days on Friday, to 210 cases per 100,000 people, Mr Drakeford added.
The restrictions come into effect at 18:00 on Friday, and are similar to the restrictions on hospitality within level three areas in Scotland.
However the rule allowing four people from four different households to meet indoors in pubs and restaurants will stay in place.
The decision will be reviewed on 17 December.
Bingo halls, bowling alleys, soft play centres, casinos, skating rinks and amusement arcades will also have to close.
Meanwhile current restrictions on travel into England, implemented while a lockdown is in place over the border, are being reviewed.
The first minister said he would make a further announcement later this week.
The chief executive of one of Wales’ largest breweries says she wants the Welsh Government to prove that Covid is being spread in pubs and restaurants.
“Where is the scientific evidence that you are more at risk in a pub than you are at home or in a supermarket?” said Connie Parry of Tomos Watkin brewery in Swansea.
Ian Price, director of business lobby group CBI Wales, warned closures and job losses were “all but guaranteed” in pubs and restaurants.
“The first minister’s announcement is devastating for a Welsh hospitality sector that’s already reeling from a damaging cycle of restrictions,” he said.
Dai Dearden, general manager of The Grange pub in Cardiff, said the announcement was a “hammer-blow”.
“I think it will close us for the time being at one of the busiest times of the year”, he said, adding it would have “a massive effect on the health and well-being, and mental state, of my staff and our customers”.
Tom Simmons, the chef and co-owner of Thomas in Pontcanna, Cardiff, said: “The spend in our restaurant is around 70% on food and drink – and we will lose customers who know they can’t have a drink with their meal. Many won’t come back because of that.”
“I don’t see any reason or logic behind this. All it will do is lead to people gathering at home and drinking instead – it would be structured with restaurants and pubs, not in people’s homes.”
Joanne Cooney runs the Irish Bar in Llandudno in Conwy county, which currently has the lowest coronavirus case rate out of Wales’ 22 counties.
She said: “The numbers are high in big towns and we’re being penalised for them. Our numbers are low. We should’ve been able to open and trade.”
“People are not going to come in. You’ve just turned us into a coffee shop, the town has loads of coffee shops – that’s not what we are.”
Ben Francis, of the Federation of Small Business, said it was “incredibly important” that promised funding “can be rolled out as a matter of urgency”.
“There is no getting away from the fact that today’s announcement will come as a devastating blow to those indoor entertainment and hospitality firms that have fought tooth and nail to protect jobs, remain viable and provide a safe environment for their staff and customers this year.”
Meanwhile, Folly Farm adventure park and zoo in Pembrokeshire announced it would be closing, saying it was “heavily reliant” on the indoor part of the business.
A spokesman for the Welsh Association of Visitor Attractions, which represents more than 70 family attractions in Wales, said the Welsh Government did not consult with tourism leaders before deciding the new rules.
“The health of Wales is paramount, but the way tourism decisions are now being taken is scandalous.
“Some members have stated that the stop-go, no-consultation policy of the Welsh Government is affecting both their health and well-being, and that the Welsh tourism industry is in a state of utter despair at the way it is being treated,” it said.
The first minister told the press conference that the evidence “is there” that the virus is spreading in hospitality – and said it could be seen from a series of reports from the Welsh Government’s Technical Advisory Cell.
“When people meet together in a hospitality setting, you’re not just having a glancing encounter with somebody as you do if you’re going round a supermarket,” he said.
“You’re sitting together with people for a significant period of time.”
BBC Wales has asked to see the evidence cited by Mr Drakeford.
A Welsh Government spokesman referred to a report from the scientific advisory group for emergencies (Sage) in September which estimated that closing bars, pubs, cafes and restaurants would have a “moderate impact” on Covid transmission.
Hospitality businesses were allowed to open after the firebreak ended earlier in November.
Mr Drakeford said scientific and medical experts had warned that by 12 January, the total number of people with Covid in hospital could rise to 2,200 “unless we respond now”.
According to the House Of Commons Library there are 2,190 pubs in Wales.
What is the political reaction?
Paul Davies, Welsh Conservative Senedd leader, said: “This blanket approach across all of Wales is disproportionate and will unfairly affect parts of the country where infection rates are significantly lower than others, and will harm the sector to such an extent that large parts of it may not recover.”
Plaid Cymru said it had called for stricter measures as Wales came out of its firebreak lockdown.
“The Labour Welsh Government failed to do that and now hospitality is paying the price,” Helen Mary Jones, Plaid’s economy spokeswoman, said.
Caroline Jones, of the Independent Reform Alliance in the Senedd, said the national approach would “strangle the hospitality sector further at the very time of year in the run up to Christmas where many pubs, cafes and restaurants make their profits”.
What business support will be available?
The £160m “Restrictions Business Fund” will offer firms in the hospitality, tourism and leisure sectors that pay non-domestic rates (NDR) grants of up to £5,000.
The Welsh Government estimated around 60,000 businesses with a rateable value of under £150,000 would receive the support.
A “sector-specific” £180m Economic Resilience Fund would be made available for hospitality, tourism and leisure businesses.
The Welsh Government said small and medium sized businesses meeting the criteria could receive up to £100,000, while larger firms could receive up to a maximum of £150,000.
Analysis by Sarah Dickins, BBC Wales economics correspondent
The financial support for the hospitality industry is significant and much more than it has been given before.
But coming just a month after the two-week firebreak, these restrictions will be a deadly blow for some traders.
Once again the Welsh Government is having to walk a fine line, beating the virus by reducing the amount we meet others, while at the same time trying to protect the businesses we usually go out to.
Urban pubs may still attract shoppers for a “dry” lunch but they are unlikely to spend nearly as much as usual.
Rural pubs, often a community’s main place to meet, are more dependent on their evening trade.
The money they are getting from the Welsh Government might well pay overheads like rent and insurance but these are businesses that have already taken a huge hit this year.
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