Changes to the Act will make it illegal to racially 'harass' someone in an overhaul of section 18C.
After years of fractious debate, the nature of free speech in Australia will be altered under a plan from Prime Minister Malcolm Turnbull to change the Racial Discrimination Act.
The government has unveiled plans to change section 18c of the Act, which makes it illegal to offend, insult, humiliate or intimidate someone on the basis of their race or ethnicity.
The words 'offend', 'insult' and 'humiliate' will be replaced with 'harass', while 'intimidate' will remain in the Act.
"The changes we are proposing to section 18C will provide the right balance between protecting Australians from racial vilification and defending and enabling their right of free speech, upon which our democracy, our way of life, depends," Prime Minister Turnbull said.
"We are defending the law by making it clearer. We are defending Australians from racial vilification by replacing language which has been discredited and has lost credibility."
The government also plans to change the process involving Australian Human Rights Commission, where complaints regarding the Act can be lodged.
The Commission will be expected to decide whether complaints have any substance sooner, complaints will need to be lodged within six months and resolved within a year, according to the Attorney-General George Brandis.
The AHRC said it received 77 complaints under section 18C of the Act last year, and 52 per cent of racial vilification complaints were resolved at conciliation.
The Act was introduced in 1975 by the Labor Whitlam Government and Labor has strongly opposed any changes to the Act for years.
"This isn't about free speech, it's about the prime minister appeasing his party," Opposition Leader Bill Shorten told parliament.
"Watering down section 18c won't create jobs, it won't train apprentices it won't reopen TAFEs."
Racial abuse will become more common in Australia if the changes go ahead, according to Labor.
"When you remove the words that they're removing, there will be forms of racial hate speech which will be given license to," shadow Multicultural Affairs Minister Tony Burke said.
"Yesterday this government released it's multicultural policy. It didn't even survive 24 hours before they walked all over it."
Labor MPs and Senators used parliament on Tuesday afternoon to highlight their own experiences of racism and asked why it was important for the government to change the Act.
"What insulting, offensive, or humiliating comments does the Prime Minister think people should be able to say to me?" Labor Senator Malarndirri McCarthy asked.
Watch: Malcolm Turnbull and George Brandis detail changes to the Racial Discrimination Act
The changes will be introduced directly into the senate by the Attorney-General but the bill will face significant opposition from key crossbench senators.
"On this day, Harmony Day, of all days, Malcolm Turnbull is looking to give the greenlight to racists and bigots," Greens Leader Richard Di Natale said.
"It's now up to the Greens, the Labor Party and the crossbench to ensure these changes never see the light of day."
Watch: Richard Di Natale on the proposed 18C changes
Crossbench senator Nick Xenophon also indicated he wouldn't back the changes.
"Right now, we will work constructively with the government to change the processes involving 18C but we're not convinced of the need to change the wording of 18C," he said.
"When the process becomes the punishment, you know you've got a problem so we need to deal with the process first."
But another crossbench senator, Derryn Hinch, said he will vote for the changes.
The Racial Discrimination Act came to national attention in 2011 when broadcaster Andrew Bolt was found to have breached it when he wrote columns criticising prominent Indigenous Australians.
Former Liberal Prime Minister Tony Abbott campaigned to have the Act changed but took his proposal off the table in 2014, saying it was distracting to his relationship with the Muslim community.
Since then, several high profile cases have seen alleged breaches of the Act.
Watch: Labor MP Mark Dreyfuss slams the changes as a "betrayal"