The 457 visa programme is used mainly to hire foreign workers in the restaurant, IT and medical industries - the majority came from India, the UK and China.
But PM Malcolm Turnbull said it will be abolished to prioritise the recruitment of Australian nationals.
Critics of 457 said Australian workers lost out to foreign counterparts.
In its place, two new temporary visas will carry additional requirements and draw from a smaller list of eligible professions.
"The new system will be manifestly, rigorously, resolutely conducted in the national interest," Mr Turnbull said on Tuesday.
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