The tax on cigarettes will rise by 25 per cent from midnight, as part of the federal government's crackdown on smoking.
The government will also force tobacco companies to use plain packaging from July 1, 2012.
A government statement says the changes will cut tobacco consumption by six per cent and the number of smokers by two or three per cent - about 87,000 Australians.
The 25 per cent tax increase will mean an increase of about $2.16 for a pack of 30.
Raising tobacco excise will generate an extra $5 billion over four years, the government says, and the money will be directly invested in hospitals.
Internet advertising of cigarettes will also be restricted, and an extra $27.8 million will be spent on anti-smoking campaigns.
New legislation will prohibit logos, brand imagery, colours, and promotional text other than brand and product names in standard colour, position, font style and size, the government statement says.
"The new branding for cigarettes will be the most hardline regime in the world and cigarette companies will hate it," Prime Minister Kevin Rudd told reporters in Sydney on Thursday.
But he said he made no apology for that.
"This is a tough decision for the government," Mr Rudd said.
"It won't win the government any popularity. "The big tobacco companies will hate what we're doing.
"The government, however, makes no apology whatsoever for what it is doing.
"It is the right decision for two reasons: it will help people to stop smoking and, second, it will raise more money to invest directly into the National Health and Hospitals Network."
Mr Rudd denied the move was a headline grabbing stunt designed to take attention away from recent bad news, including the shelving of the government's carbon pollution reduction scheme.
He said the announcement had been made because the media had recently begun reporting a cigarette tax rise on the way.
As a result, the Australian Tax Office had advised that smokers were stocking up on cigarettes prior to the rise coming into effect, Mr Rudd said.
