Under draft legislation, foreign nationals with skills in fields identified as facing shortages would be awarded a visa allowing them to work in Japan for up to five years.
The plan reportedly aims to fill gaping shortages in sectors such as agriculture, nursing, construction, hotels and shipbuilding.
Foreign workers in those fields who hold stronger qualifications and pass a Japanese language test will also be allowed to bring family members and can obtain permanent residency status.
Government spokesman Yoshihide Suga told reporters on Friday that the bill would be submitted to parliament "at the earliest possible time," with a possible launch in April.
Japan has traditionally been cautious about accepting unskilled workers from abroad and currently limits residential status to highly skilled professionals.
The only exception to this rule is for South Americans of Japanese descent.
And Prime Minister Shinzo Abe's government has stressed the reforms are not intended as a wholesale overhaul of Japanese immigration policy, and mass immigration is not expected.
Japan will not rely heavily on foreign immigrants and the policy "remains unchanged," Suga said, asked if this represented a drastic shift in immigration policy towards accepting a large number of foreigners.
Japan's economy battles a crippling labour shortage caused by an ageing and shrinking population. Source: Reuters
Businesses have long lobbied for looser immigration rules, saying they struggle to find workers in a country where unemployment hovers around 2.5 percent and there are 163 job vacancies to every 100 job seekers.
The government has not set a target for foreign workers under the new proposals, although local media put the figure at more than 500,000 people by 2025.
According to government figures, there were 1.28 million foreign workers in Japan in 2017 -- twice as many as a decade ago.
But more than 450,000 of those are foreign spouses of Japanese citizens, ethnic Koreans long settled in Japan, or foreigners of Japanese descent, rather than workers coming to Japan to seek jobs.
A further 300,000 are students, who are allowed to work part-time during their studies but are expected to return home afterwards.
Japan had fewer than 240,000 foreign skilled workers and just over 250,000 foreign trainees in the country in late 2017, according to government figures.
It has bilateral deals admitting limited numbers of nurses and care workers from other parts of Asia.