The Emergency Alert system already sends warnings by recorded voice and text message to landlines and mobile phones based on an owner's billing address.
In response to last year's interim report of the Victorian Bushfire Royal Commission, Labor agreed a national warning system that delivered alerts according to where a person's mobile phone was actually located was also needed.
Prime Minister Julia Gillard and Attorney-General Robert McClelland on Tuesday announced Labor would fund the upgrade of the warning system to include this extra capability.
The Victorian government will now lead negotiations with each of the mobile phone carriers to put the service in place.
A spokesman for Mr McClelland could not say how much the upgrade would cost at this stage, given the negotiations.
