Parents dealing with infant deaths, premature births and stillbirths will soon have access to 12 months of unpaid parental leave.
It's the same amount of unpaid leave parents of healthy babies are able to access, and the changes will be made through legislation flagged for later this year.
"The government understands how devastating losing a child can be and recognises that the current entitlement to just six weeks of guaranteed unpaid parental leave is insufficient for many parents who need more time before they return to work," Attorney-General Christian Porter said on Wednesday.
It will also be easier for parents of premature babies, or babies who need to be immediately hospitalised due to birth complications, to return to work and restart their leave when their child can go home.
"Parents have told us how frustrated they felt by having to use up large amounts of their leave while their little one was in hospital, instead of being able to put it on hold until they needed it," Mr Porter said.
"These changes will give parents that flexibility and ensure they will get to spend quality time at home with their child when they leave hospital."
The draft legislation will be released for consultation in coming weeks.
Federal Labor has welcomed the proposal and have urged the private sector to do the same.
"Stillbirth is the biggest cause of infant death in our country today and the rate of death from stillbirth is higher than the national road toll," Labor senator Kristina Keneally said.
"We must do everything to support families through the devastation of such heartbreak."
Labor also wants the government to provide bereavement payments to parents of stillborn babies.
Senator Keneally, whose daughter Caroline was stillborn 20 years ago, is a vocal advocate for families who have experienced stillbirth.
Australian Associated Press