The company said the cut was the price equivalent of Â£32 off the average annual bill.
It is the first of the big six energy firms to announce a price cut this year.
Pressure has been growing for price reductions in light of big falls in gas and electricity wholesale costs.
Industry regulator Ofgem and Prime Minister David Cameron have joined consumer groups in voicing their concerns.
An ongoing investigation by the Competition and Markets Authority (CMA) has been examining the energy market for 18 months.
The chief executive of E.On, Tony Cocker said, "The underlying position is that whilst the price we pay for our customers' energy has fallen, we also have to take into account managing the various other risks in the market which can change, and the fact that many of the other costs that we don't control, but do have to bear have increased or may increase."
E.On said it had Britain's cheapest energy tariff, with the launch of a one-year fixed dual fuel product with an average price of Â£783.
Director of consumer policy at Uswitch, Ann Robinson, said: "Consumers have patiently waited for over six months to see another big six price cut so this move, while welcome, is long overdue.
"Given the fact that wholesale prices are at a five year low, E.ON customers may well feel underwhelmed by the size of this cut.
"Wholesale electricity costs fell 23% last year, so why have we not seen a single reduction to big six standard electricity tariffs? This is yet further evidence that the energy market simply isn't working for most UK households."
E.On has announced a 5.1% reduction in its standard gas price for residential customers.