It would allow police to deal with people caught with a drugs through a $100 civil fine and not through the justice system.

Labor backbencher Michael Pettersson will introduce the private members' bill early next year which he hopes will keep people out of prison and the courts.

The proposed legislation, seen by The Canberra Times, would set a possession limit of 2 grams for cocaine, ice and heroin and 0.5 grams for ecstasy.

It would also include limits for LSD, magic mushrooms and amphetamines.

People caught with drugs up to the possession limit could be dealt with via a fine.

"The police officer should confiscate the drugs, issue them with a simple drug offence notice and diversion to a health program," Mr Pettersson said.

The proposed laws would work in a similar way to how ACT police dealt with cannabis possession - through simple cannabis offence notices - before it was legalised.

"Because of our drug laws, getting caught with a small amount of a drug of dependence you can ruin your life," Mr Pettersson said.

"You risk criminal conviction and potentially two years in jail.

"I would say most people in our community don't think that's an appropriate way of dealing with people who are using drugs.

"Overwhelmingly people want want people to be diverted to health programs, pay a fine and have the substance confiscated.

"Putting people in handcuffs and sending them to jail doesn't help anyone get better."

Mr Pettersson was responsible for the move which legalised cannabis possession under ACT laws earlier this year.

Canberrans were now legally able to possess up to 50 grams of dried cannabis or two cannabis plants.

He said the new bill was a natural progression from the cannabis law reforms.

The laws caused a dispute with the federal government, with several federal ministers threatening to intervene to overturn them.

There were also questions over the conflict with Commonwealth charges which police were still open to use.

But Mr Pettersson said it was now clear the threats amounted to sabre-rattling.

He said the decriminalisation push for other street drugs would be far less controversial because police would still have an option to deal with people criminally, like they did under previous cannabis decriminalisation laws.

"With this legislation, the battlegrounds we fought on on cannabis legislation aren't really there," Mr Pettersson said.

"We're not being seen to vacate the field of criminal law."

He conceded some parts of the community who have historically faced over-policing - like Indigenous Canberrans - may be less likely to be dealt with through a fine than charged while criminal offences were still an option.

"It's not perfect - I'm pretty open about that," he said.

"Drug decriminalisation is a system that has flaws and I think those flaws pale in comparison to the current decriminalisation of illicit substances."

He said he was not proposing legalising other drugs because of the different risks they presented compared to cannabis.

It would also create more complex contradictions with Commonwealth laws.

"These substances for the most part are made in dingy circumstances; bikies' bathtubs. People do not know what they are consuming," he said.

Mr Pettersson was yet to discuss the proposed bill with police, but expected them to be receptive to it.

"When you speak to most police officers, most police officers do not like the idea of putting someone in jail for the possession of drugs," he said.

"I think our democracy is well served by parliamentarians actually talking about legislation, having it be a live piece of legislation where people are putting amendments forward."

He thought there was a chance the bill could get tripartisan support.

"The Canberra Liberals, they've said in principle they support further decriminalisation of some drugs," he said.

"I think there might be discussion about what substances should be included and potentially what substances shouldn't be included. I think that's potentially where the battle lines will be drawn."

The bill comes amid ongoing debate in NSW to "depenalise" illicit drug possession.

Mr Pettersson said that proposal could be considered a move towards decriminalisation, but political appetite and ideology prevented it from being labelled as such.