The reforms will restructure and strengthen Australia’s intelligence community, with the establishment of a Home Affairs portfolio to be overseen by current Immigration Minister Peter Dutton.
The new portfolio closely resembles the UK's Home Office structure and each agency now under the new portfolio will still retain statutory independence.
The reforms will see the the Australian Signals Directorate transformed into a statutory agency within the Defence portfolio.
The government will also establish a Home Affairs portfolio of immigration, border protection and domestic security and law enforcement agencies.
Prime Minister Malcolm Turnbull said the reforms will also enhance the Attorney-General's oversight of Australia's intelligence, security and law enforcement agencies.
"Australia faces an increasingly complex security environment, evolving threats from terrorism and organised crime, and the development of new and emerging technologies, including encryption," said Prime Minister Turnbull.
"We need these reforms, not because the system is broken, but because the security environment is evolving quickly.
"It’s becoming more complex. It’s likely to remain so for the foreseeable future. We need a better structure to meet the challenge of the times."
The changes come after a review was of Australia's intelligence community was conducted last year by Michael L'Estrange, Stephen Merchant and their adviser Sir Iain Lobban.
The review concluded that Australia’s intelligence agencies are highly capable and staffed by skilled officers. It also made many important recommendations to transform these agencies into a world-class intelligence community.
The review highlighted how changing security threats and technologies are driving the need for closer co-operation between Australia's domestic security and law enforcement agencies.
Planning to implement the changes to the Australian intelligence community, the establishment of the Home Affairs portfolio and the strengthening of the Attorney-General’s portfolio will be undertaken within the Department of the Prime Minister and Cabinet.
The Attorney-General, the Minister for Immigration and Border Protection as Minister-designate for Home Affairs, and the Minister for Justice will work with the Department of the Prime Minister and Cabinet to develop these plans with a view to their implementation from early 2018.
The PM said the reforms will complement work underway to implement the government’s 2016 Defence White Paper, including investments in new combat capability for the Australian Defence Force.
The government will also present a Foreign Policy White Paper later this year.