Australia's permanent migration numbers will stay about the same but states will have a much stronger say in where new migrants go at a local level.
State and federal treasurers will meet in February to work on a new population framework.
Speaking after the meeting of Council of Australian Governments (COAG), Prime Minister Scott Morrison says a framework is being developed to ensure states continue to have greater input on the national immigration intake and how that impacts on congestion issues.
Mr Morrison said Australia's strong economic growth could be maintained if migration stayed at the same level, but new arrivals needed to be spread around the country.
"This is an area where we need greater input from states and territories," he said after his first Council of Australian Governments meeting in Adelaide on Wednesday.
Australia currently accepts about 160,000 permanent migrants each year, despite having a higher cap of 190,000.
The migration rate will next be set through the April federal budget, but Mr Morrison expects it to sit at about 160,000 again.
NSW Premier Gladys Berejiklian said states and territories have the best idea of where migrants are needed.
"Each of us have certain unique circumstances to our state. We've never taken a holistic view of how we manage this across the nation (before)," she told reporters.
Victorian Premier Daniel Andrews, who has been calling for more federal infrastructure funding, said the two issues were inextricably linked.
"We've agreed today in the clearest terms - perhaps ever - between state, territory and the national government that infrastructure and managing population growth are essentially the same issue," he said.
Population will become a standing agenda item for future COAG meetings.
Ahead of the meeting, Mr Morrison announced an extra $1.25 billion for cancer treatment, chronic disease programs and mental health.
The leaders have also agreed to develop a "right to be forgotten" online to tackle cyber-bullying, with a proposal to be brought back to COAG.
