Migrants would be made to wait longer to be eligible for welfare payments under new laws proposed by the government.
Significant growth in welfare expenditure meant changes were necessary to secure the future of the welfare system, Social Services Minister Dan Tehan said.
The government introduced legislation to parliament on Thursday that would require new migrants to be residents for three years before accessing welfare payments including Newstart and Youth Allowance.
Waiting periods have been two years since 1997.
The new periods would apply to new migrants from July 1.
"Three years is a reasonable period to expect permanent migrants to support themselves, whether through work, existing resources or family support," Mr Tehan told parliament on Thursday.
But migrant groups fear it would create an underclass.
Mary Patetsos from the Federation of Ethnic Communities' Councils of Australia said migrants had always needed time to establish themselves in housing and employment.
"These changes make it harder for migrants to settle in this country, for the sake of what is a relatively modest government budget saving," she said.
Savings of $1.3 billion are estimated by also requiring migrants to wait three years to access low-income and senior concession cards, and introducing new three-year waiting periods for access to bereavement, widow, parenting and carer payments.
Existing exemptions, including for humanitarian entrants and New Zealanders, will continue.