Parents of children born through surrogacy would be given full legal recognition for the first time, under a bill introduced in Parliament last night. Couples would also be able to enter into surrogacy arrangements abroad.
Couples would also be able to adopt a child born to a surrogate mother between 30 days and six months of birth.
MPs will have a conscience vote on the legislation, and it is likely the Opposition will follow suit, although this is yet to be decided.
Church groups are likely to oppose the legislation, which is expected to be less contentious than recent legislation to allow same-sex adoption, narrowly passed last month.
The legislation would ban commercial surrogacy and any associated advertising, although it does provide for all costs of the birth mother to be paid by the intended parents.
Until now the only way people with children born through surrogacy have been able to gain full parenting rights has been through adoption processes.
It follows a parliamentary inquiry last year that recommended the legislation - despite intense lobbying from church groups - be introduced to strengthen the position of intending parents in a surrogacy birth.
The legislation would allow a court to approve a parentage order once it was satisfied the birth mother and the intended parents had been given legal advice and counselling and had given their informed consent. The birth mother would have to be over 25 when entering a surrogacy agreement.
The Attorney-General, John Hatzistergos, said yesterday: ''While it will still be illegal to profit from surrogacy, the birth mother in an altruistic surrogacy will have a legal entitlement to be reimbursed for expenses such as medical and counselling.
"Until now the only way people with children born through surrogacy have been able to gain full parenting rights has been through adoption processes.
"With a parentage order, couples will find it easier to enrol their surrogate child in school, make decisions about their health care and apply for a passport for them."
The orders would also ensure children born of surrogacy arrangements would have access to inheritance rights and be eligible for compensation after parents' death or injury.
"As the surrogate child is too young to have a say in the arrangements, certain safeguards will be in place to help ensure they have a stable family life," Mr Hatzistergos said.
"The laws will be applied retrospectively to parents who are now lawfully raising children under the age of 18 if the court is satisfied that the arrangement was entered into prior to conception, is not a commercial arrangement and all parties consent to granting the order."
De facto and same-sex couples would be able to apply for parentage orders under the legislation, the government said.