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Hundreds of thousands of New Zealanders living in Australia will be able to claim citizenship under a policy shift, Prime Minister Anthony Albanese announced on Saturday.

He announced that from July, hurdles to citizenship will be removed, allowing New Zealanders on Special Category Visa to apply directly for Australian citizenship without becoming permanent residents first, as long as they meet a four-year residence and other eligibility requirements, reports Xinhua news agency.

It means that approximately 400,000 of the 700,000 New Zealanders currently living in Australia will be eligible for citizenship.

The decision overturns a 2001 move by Australia to strip New Zealanders of citizenship access and instead establish a Special Category Visa.

Albanese, who made the announcement prior to meeting with New Zealand Prime Minister Chris Hipkins in this weekend, said the change was consistent with his government's ambition for a fairer and more inclusive migration system.

Hipkins, who is visiting Australia for the second time since becoming Prime Minister, said it would bring the countries closer.