Unemployed workers will be given an extra $50 a fortnight once coronavirus supplements are scrapped, but bosses will be able to dob in anyone who turns down a job.
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The federal government is boosting the permanent base of the dole to $620.80 a fortnight.
The increase works out to an extra $3.57 a day.
People will also be able to earn $150 a fortnight without affecting their welfare payments.
The measures are expected to cost $9 billion over four years and lift JobSeeker to 41.2 per cent of the minimum wage.
But the modest increase falls far short of the $150 coronavirus supplement, leaving bitterly disappointed welfare groups to describe the boost as a heartless betrayal.
Prime Minister Scott Morrison linked the new rate of JobSeeker to the vaccination rollout, saying it marked a new chapter in the country's response to the pandemic.
"We are moving from short-term emergency measures to long-term arrangements that people can rely on should they find themselves out of work," he told reporters in Canberra on Tuesday.
Mr Morrison described the increase as the single largest year-on-year boost since the 1980s and brushed off criticism from community groups.
"I have no doubt that at whatever rate you set the payment, there will always be suggestions by some that it should be more," he said.
"There'll be some who suggest it should be less.
"That's why a government has to exercise judgment in getting that balance right. Not just in the setting of the payment, but also the conditions that sit around the provisions of that payment."
When the plan was presented to a coalition partyroom meeting, one MP described the JobSeeker increase as unaffordable, and said they could not justify the country going any further into debt.
The modest increase will be paired with much tighter eligibility rules and harsher mutual obligations for the 1.3 million people still on JobSeeker payments.
A government-run hotline will be established for bosses to dob in welfare recipients who are offered a job and do not accept.
Individuals may have their payments docked if they cannot produce a valid reason.
People on JobSeeker for more than six months will have to work for the dole or engage in an "intensive training" program of short courses.
Welfare recipients will have to attend face-to-face meetings with employment agencies and apply for at least 15 jobs a month.
This will increase to 20 jobs a month from July.
Labor will not stand in the way of raising the JobSeeker rate but wants to work through the detail of the additional mutual obligation requirements.
Opposition frontbencher Linda Burney said the government would need to introduce legislation this week if it wanted to change the rate.
"The government has indicated there would be a trade-off between increasing the rate and additional mutual obligation requirements," she told a caucus meeting.
"We want people to live in dignity, we want people to alleviate poverty and we want to get people into jobs."
Greens senator Rachel Siewert described the JobSeeker increase as a cruel joke.
"This is an appalling slap in the face for all those people trying to survive on JobSeeker," she said.
"This will mean people going without meals, without medication, without the funds to pay for heating or cooling.
"We will not stop campaigning until we have an increase that is over the poverty line."
Australian Associated Press
