Regional MPs will have to prove their main home is more than 80km from Melbourne to claim a second residence allowance under an overhaul of parliamentary perks.
Cabinet met on Monday to start the process of reforming the entitlement system after both Speaker Telmo Languiller and Deputy Speaker Don Nardella resigned amid an expenses scandal on Saturday.
The pair claimed about $140,000 between them to live in seaside towns instead of their western Melbourne electorates.
Changes to entitlements will have to go through parliament to be enacted.
It's understood changes proposed at Monday's cabinet meeting included restricting the second residence allowance to MPs representing regional electorates.
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Those MPs would have to provide documents, such as rent or mortgage contracts and bills, to prove they live there, doing away with the current honesty system.
Other reforms are an advisor to examine claims before they are approved and publishing allowances received.
It is understood Premier Daniel Andrews told cabinet the claims by Mr Languiller and Mr Nardella were completely unacceptable.
But opposition leader Matthew Guy said Mr Languiller and Mr Nardella should be investigated over whether they had provided false declarations to parliament about where they really lived.
"There is some disputation to whether people lived at those addresses," Mr Guy told ABC 774 on Monday.
Special Minister of State Gavin Jennings will investigate his Labor colleagues and said if false declarations had been made they would have serious consequences.
Parliament's audit committee will also examine the claims.
Mr Languiller apologised for claiming more than $37,000 to live in Queenscliff instead of his electorate and will repay the money.
But Mr Nardella has not apologised or given any indication he will pay back the more than $100,000 he claimed for living in Ocean Grove.
The allowance is meant for country MPs who live more than 80km from Melbourne, helping them maintain a second residence in the city.
Both Mr Nardella and Mr Languiller have electorates within 50km from Melbourne's CBD.
Mr Andrews on Sunday described the behaviour as "appalling", noting the public's skepticism and distrust of MPs.
It is the third entitlements scandal to hit his government.
The government is going to the High Court in a bid to stop the Ombudsman's investigation into allegations MPs misused allowances in the 2014 election campaign.
Last year Steve Herbert resigned as corrections minister after using his taxpayer-funded driver to chauffeur his two dogs.
The coalition has seized on the scandal, pointing to comments made by Labor when itself was in opposition on entitlement misuse allegations levelled against Liberal MP Geoff Shaw.
In 2014, Mr Nardella called for an apology from Mr Shaw and Mr Andrews labelled the conduct "unprecedented".
Federally, Liberal MPs Bronwyn Bishop and Sussan Ley have also brought scrutiny on entitlements.
Ms Bishop resigned as speaker after she spent $5000 on a helicopter flight to a party fundraiser and former health minister Ms Ley bought an investment property on a taxpayer-funded trip.
