The retailer said it had introduced the new packaging following its recent Shopping with Attitude survey in which six out of 10 people said retailers should use only degradable or bio-degradable materials.
Although just as strong and as safe as standard plastic bread wrappers, the Co-op's degradable bread bags fully degrade to carbon dioxide, water and a small amount of organic residue after approximately four years, the company claimed. Standard plastic bread bags take 100 years or more to degrade, it added.
Some 1.67 billion bread bags are produced in the UK each year, a necessary requirement for one of Europe's biggest industrial bakery markets. With each bag weighing an average of 6g, a massive 10,521 tonnes of waste are generated by bread bags every year - equivalent in weight to 30 jumbo jets or 120 tanks.
The Co-op, which is one of the smaller UK retailer group, sells around 55 million loaves each year under its own brand alone, generating 346 tonnes of bread bags in household waste per annum.
Christine Clarke from the Co-operative Group said: "We are delighted to be the first UK retailer to bring this fully degradable bread bag to market. It is something our customers - and the wider public - will clearly welcome as it will help to reduce non-degradable waste."
She added: "Our survey into the ethics of supermarket products demonstrated that on every count - including packaging - consumers are more concerned today than they were 10 years ago.
"As a result of this, we have committed to introducing more environmentally-sound packaging, such as degradable and bio-degradable materials, across our range by taking advantage of technological developments."
The Co-op was also the first UK retailer to introduce degradable carrier bags - they feature in at least 10 per cent of its stores - and other retailers are now following suit. The UK's number one supermarket group Tesco, for example, this year started making all its carrier bags with a new additive called TDPA, which means that the bags will start to break down in as little as 60 days, leaving no harmful residues. Somerfield has degradable carrier bags in all its stores.
But a report published earlier this year showed that retailers also have a long way to go when it comes to truly cutting waste output. One unnamed retail chain highlighted in the How Green is Your Supermarket? report compiled by Liberal Democrat MP Norman Baker was found to have distributed a whopping nine billion bags last year, more than all the others put together.