After two years of negotiations with clubs, federations and players who went on strike to demand better management, President Dilma Rousseff sent Congress a bill designed to save the ailing national game.
The country's top sides owe the government between 3.5 billion and 3.8 billion reais (711.9 million pounds and 772.33 million pounds), according to sports ministry officials.
"Our football urgently needs a modernisation programme for its management," Rousseff said.
Rousseff and players linked Thursday's announcement to Brazil's humiliating 7-1 loss to Germany in last year's World Cup semi-final on home soil.
Brazil is producing fewer and fewer top class players and the national side is no longer feared by opponents.
"Brazilian football lost its way," former Brazil and AC Milan goalkeeper Dida said at the signing ceremony. "Talent is not enough, we need to understand that football is a business and it needs to be serious and transparent."
Under the new law, clubs will be given up to 20 years to repackage their debts with the government, which include back taxes and unpaid pension and social security contributions.
In return they must comply with a series of demands that include issuing independent financial accounts, producing a business plan to show how they will reduce their debts, and increased spending on junior and women's football.
"The programme will be applied and it must be followed up," warned Sports Minister George Hilton. "The clubs who do not will face the threat of relegation as in Europe."
The moves comes as Brazil imposes spending cuts due to economic uncertainty and a week after the Brazilian Football Confederation introduced a Labour Fair Play rule that could see clubs who do not pay their players on time docked points.
That measure is designed to end a culture in which even the richest clubs in the country routinely pay their players months behind schedule.
The main players group, Common Sense FC, supported the initiative but others pointed out it is not the first time the government has tried to help poorly run football teams.
Rousseff's predecessor included 80 professional clubs in a lottery system that awarded 22 percent of its income to clubs to pay off their debts.
However, the lottery never took off and the project failed to have any serious effect.
(Reporting by Anthony Boadle; Writing by Andrew Downie, editing by Alan Baldwin and Pritha Sarkar)
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