The decision comes following revelations the accused killer, Dimitrious Gargasoulas, was released on bail just days earlier over unrelated charges, despite police opposition.
Victorian Premier Daniel Andrews said his government owed it to the victims to fix the state's judicial system.
"What occurred on Friday is not only a cause of great sadness, but a cause of legitimate and profound anger," he said.
"How could this have happened? How could such a tragedy have come to our city? How could so many lives end and so many lives change forever?
"They're legitimate questions and the sense of anger and frustration, together with a sense of sadness and grief and loss, are all profound."
Related reading
Bail overhaul for Victoria after Bourke Street deaths
In Victoria, bail justices are able to release people charged with criminal offences if a magistrate's court is not in session.
The bail justices are volunteers, many of them Justices of the Peace where legal qualifications are not required.
Daniel Andrews said no expense would be spared to overhaul the process.
"We will, as soon as possible, and work is currently under way, to establish an after-hours Magistrates Court so that magistrates, rather than bail justices, will be able to hear bail applications, particularly for those serious matters," he said. "In broad terms, they'd be best defined by those matters involving violence."
There will also be a sweeping judicial review by the state's former Director of Public Prosecutions, Paul Coghlan.
And after several attempts to tighten bail laws, Attorney-General Martin Pakula has promised a comprehensive but speedy assessment that will offer practical options for reform.
"We are asking Paul Coghlan to look at this top to bottom," Mr Pakula said. "We do not want to simply have a piecemeal approach to the bail system.
"This is not like a Law Reform Commission review, where we're asking for 12 months, or anything of that nature.
"We are asking Mr Coghlan to provide us with this advice from 10 weeks and to provide us with practical options for legislative reform that we can implement quickly. That is a recognition both of the complexity but also the urgency of the task."
Bail changes 'long overdue': police
The move to replace out-of-hours bail justices with magistrates was welcomed by Ron Iddles, the secretary of the Victorian Police Association and former homicide detective.
"We are now in 2017 and I don't think it's the place to have volunteers who aren't well-trained to determine serious applications for bail," he said. "We have also got to look at community expectations and I can tell you here in Victoria, the community has had enough."
Mr Iddles said the review should also look at how offenders are able to be bailed several times.
Related reading
Melbourne Bourke Street mall driver faces 'murder charges'
"What the Bail Act says is that if you are committing an offence while on bail you shouldn't get bail unless you can show reasonable cause," he said. "But we know people who have got five lots of bail. So the question has got to be asked, 'why is that happening?'"
Floral tributes have continued in Melbourne's busy Bourke Street Mall, where the dead included a three-month-old baby boy. Others named include 10-year-old Thalia Hakin, 22-year-old Jess Moody and 33-year-old father Matthew Si.
A coroner will investigate the incident, which Daniel Andrews said his government must learn valuable lessons from.
"We need to do more to keep the community safe and to honour the memory of those who have paid such a high price," he said. "Those who have lost their lives and those who will be forever changed by what happened on Friday.
"We are angry, we're frustrated and we're desperately sad."
Related reading
Two more Bourke Street victims named as families pay tribute
