The programme known as 457 visa allows business to employ foreign workers for a period up to four years in skilled jobs where there is a shortage of Australian workers.
"We are an immigration nation, but the fact remains: Australian workers must have priority for Australian jobs, so we are abolishing the 457 visa, the visa that brings temporary foreign workers into our country," said Prime Minister Malcolm Turnbull.
"We will no longer allow 457 visa to be passports to jobs that could and should go to Australians," he said.
He said Australia will adopt a new 'Australians first' approach to skilled migration.
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As at September 30 last year there were 95,757 workers in Australia on primary 457 visas and 76,430 secondary visa holders (members of their family), ABC reported.
The programme will be replaced by another visa programme, with new restrictions.
"It is important businesses still get access to the skills they need to grow and invest, so the 457 visa will be replaced by a new temporary visa, specifically designed to recruit the best and brightest in the national interest," Turnbull said.
The 457 visa was introduced in the 1990s to quicken the entry of business professionals and highly skilled migrants but over time it was opened up for a broad category of workers.
The programme was hit by controversy with allegations that the visa was being misused by employers to import cheap workers who lack necessary skills.