Independents and the Greens have teamed up to get the changes over the line in time for the next federal election.
But the Albanese government has criticised the proposal as leaving a loophole for wealthy candidates to fund their campaigns with no limit in a single seat.
The Fair and Transparent Elections Bill will be introduced to the upper house by Senators David Pocock and Larissa Waters while Curtin MP Kate Chaney will put it to the House of Representatives.
Almost all the crossbenchers in parliament have backed the bill to cap donations, require truth in political advertising rules and real-time disclosure.
Greens Senator Larissa Waters says Labor is yet to act on its promise to "clean up politics". (Mick Tsikas/AAP PHOTOS)
The legislation proposes capping individual donations at 2 per cent of the total public funding provided at the last election, which was $1.5 million.
Anthony Albanese was quizzed in parliament by Ms Chaney who asked if draft reforms would be designed by the two major parties to lock out political competition.
The prime minister said democracy was undermined when big money was spent on elections.
"I don't think it is tenable at all to have the sort of dollars washing around the system such as occurs in the United States," he said.
Special Minister of State Don Farrell previously flagged laws would be brought this year but wanted support from across the parliament to make sure changes would be passed. .
Senator Waters said the group was taking action after waiting 18 months for Labor to implement its election pledge to "clean up politics".
She said the joint-forces feared Labor was "stitching up a deal" with the coalition that would shore up the two major parties.
Asked about the lack of a spending cap, Ms Chaney said the proposed donor cap was simple and would unlikely be challenged in the High Court as it allowed competition.
"The compromise that we've come to is a donation cap that still prevents an individual from having a disproportionate impact, but allows multiple people to make donations and for campaigns to actually spend the money that they've raised," she said.
Senator Farrell said Labor was committed to electoral reform.
"We need to stop billionaires throwing their money around and trying to buy our elections," he said.
"Some of the teals are saying to us that they agree with banning big money, just not theirs."
The government is drafting a model for truth in political advertising, and is looking at a South Australian style option, where the electoral commission has a panel to judge claims made.
Clive Palmer says an electoral spending and donation cap could be challenged in the High Court. (Bianca De Marchi/AAP PHOTOS)
An increase in public funding may be considered, in addition to extra resources for the Australian Electoral Commission.
Opposition Leader Peter Dutton has said truth in political advertising was "probably welcome".
Clive Palmer, whose company Mineralogy donated $7,088,867 to the United Australia Party in 2022/23, has said a spending and donation cap could be challenged in the High Court.
The government expects a High Court bid would be brought against new laws.
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