In short:

The Victorian government will introduce a tobacco licensing scheme and establish a tobacco regulator as part of new legislation.

Police will also be given greater powers to search for illegal tobacco, and retailers breaking the law will face the toughest penalties in the country.

The government is hoping the new laws are passed by parliament by the end of the year.

The Victorian government is promising the toughest penalties in the country as it introduces legislation into parliament to combat the illegal tobacco trade.

The state government plans to establish a tobacco licensing scheme for retailers, give police more power and resources to crack down on illegal sellers, and establish a new tobacco regulator with dedicated inspectors.

Any person found selling tobacco without a licence could face a fine of $355,000 or 15 years in jail and businesses could face fines of up to $1.7 million.

Premier Jacinta Allan said the legislation will be introduced to parliament on Tuesday and she wants it passed by the end of the year.

"This strict new licensing scheme includes more boots on the ground, more resources on the ground, more powers, particularly more powers for Victoria Police to crack down on the illicit tobacco trade," she said.

"There will be massive consequences, massive penalties for people who breach this regime and these penalties are the toughest penalties in the nation."

Ms Allan said the new measures will support police who have already executed 200 search warrants, arrested 80 people and seized more than $37 million in illegal tobacco and related items.

Shadow Minister for Consumer Affairs Tim McCurdy said the opposition had not seen the bill, nor would they until it was tabled in parliament.

Mr McCurdy said he was supportive of the direction of the proposed laws but wanted Victoria Police to have greater involvement in monitoring adherence to the new licensing regime.

"We don't want this slap of the wrist with a wet lettuce anymore – these have got to be serious fines," Mr McCurdy told ABC Radio Melbourne.

Licences only for 'fit and proper persons'

Under the government's scheme, tobacco will only be able to be sold by licensed retailers.

People applying for a tobacco license would be subjected to a "fit and proper persons" test and applicants may be rejected based on their history and known associates.

The government said this would ban people who have criminal affiliations and prevent businesses from being undercut by criminal syndicates.

A new tobacco regulator will administer the scheme and be responsible for enforcement and compliance of licences.

The regulator would have the power to search shops and seize illegal items.

The search powers of police will also be expanded to make it easier and quicker to raid retailers suspected of having links to organised crime.

Bill goes 'almost all the way'

Australian Association of Convenience Stores chief executive Theo Foukkare supported the new bill, saying the proposed legislation went "almost all of the way to addressing the problems at hand".

"The one area that we believe the Victorian Government could look at is introducing powers to seize the property for any stores that are found to be breaking the law, for a maximum of up to six months," he said.

"That would bring Victoria, on that element, in line with what we are seeing in both the South Australian and Queensland Governments' legislation."

Mr Foukkare did not believe there should be any limiting of the number of legitimate retailers allowed to sell tobacco products.

"Prohibiting the availability of legal products is a crazy idea," he said.

"All that will do is minimise the number of stores, and ultimately you're giving a free kick to the criminal organisations that are running the illegal tobacco trade."

He said the focus had to be on getting the bill passed, and the dedicated task force up and running.

"These laws must pass immediately to allow authorities to try and get on top of Victoria's illicit tobacco war that continues to put the lives of innocent people at risk."

Government health promotion agency VicHealth also supported the proposed licensing scheme, with the organisation's chief executive Dr Sandro Demaio saying it would save lives.

"A tobacco licensing scheme will remove dishonest sellers from the market, ensuring they aren't peddling poison to school children, or selling illicit tobacco or vapes," he said.

VicHealth executive manager Michelle Murray said data showed teen smoking had increased for the first time in a quarter of a century, on the back of rising use of vapes.

VicHealth estimated tobacco killed about 4,000 Victorians and 20,000 people around Australia every year, making it the leading cause of preventable deaths, and that Victoria spent more than $600 million dollars annually on smoking-related healthcare.