The federal government is expected to announce policies capping immigration at 160,000 and forcing a portion of skilled migrants to live outside Sydney and Melbourne.

Cabinet has authorised the changes, which would slash the targeted annual intake of permanent migrants by up to 30,000, The Australian reports.

A regional settlement policy would require a certain number of skilled migrants to live for at least five years in cities other than Sydney and Melbourne.

Australian Prime Minister Scott Morrison speaks at the Australia-Israel Chamber of Commerce lunch at Crown Aviary in Melbourne yesterday. (AAP)

The government will also provide incentives for foreign students to attend universities away from the two major cities, as part of its bid to reduce congestion in Sydney and Melbourne.

The changes come as part of a series of changes announced by Prime Minister Scott Morrison.

Last week, farmers were effectively given access to an agriculture visa after a raft of migration programs were extended.

The agriculture sector, led by horticulturalists and the National Farmers' Federation, has been pushing for a specific farm worker visa to address crippling labour shortages.

Mr Morrison said the government had extended enough existing programs to do the same job as a dedicated visa.

"We already have one. It already works that way. This is just a semantic discussion about titles," he told the ABC.

9Mr Morrison said he would continue to expand migration schemes as workforce demands presented.

"You continue to try and work with the sector but at the same time you want Australians doing Australian jobs so you've got to get the balance right," he said.