The Federal Government will raise taxes on cigarettes by an extra 25 per cent, Prime Minister Kevin Rudd has confirmed.

The hefty hike, which takes effect from midnight tonight, will put another $2.16 on a pack of 30 cigarettes.

Tobacco retailers have reacted angrily to news of the sudden tax hike.

Mr Rudd has also announced the Government will crack down on internet advertising of cigarettes and will spend $27.8 million on an anti-smoking campaign.

The announcement comes as the Government also moves to force tobacco companies to put cigarettes in plain packaging.

The increase will raise an extra $5 billion over four years, which the Government will put towards its health and hospitals overhaul.

Mr Rudd says he makes no apologies for the new anti-smoking plan.

"This is a tough decision for the Government. It won't win the Government any popularity," he said.

"The big tobacco companies will hate what we are doing."

Health Minister Nicola Roxon says the tax increase will encourage about 2 to 3 per cent of smokers, or 87 000 people, to stop.

"We encourage the community to think again about whether now is the time to quit," she said.

Australia would be the first country in the world to force cigarette companies to use plain packaging.

From 2012, companies will only be allowed to print their brand name in a standard style and graphic health warnings will remain on the packets.

The tax hike and the plain packaging were recommendations of the Preventative Health Taskforce, which handed down its findings last September.

Mr Rudd unveiled the plan today as the Government sought to keep the political debate on health in the wake of its move to delay the introduction of an emissions trading scheme.

It also comes ahead of the release this Sunday of the Henry tax review.

The Opposition is keeping its options open on whether it will support plain packaging, but has criticised Mr Rudd for trying to create a political distraction.

Opposition Leader Tony Abbott says the Government is making a tax grab.

"In fact it's a panic tax put in place by a Government whose spending is absolutely out of control," he said.

"The Rudd Government is addicted to spending in the same way that some people are sadly addicted to nicotine."

The Greens, Family First and Independent Senator Nick Xenophon have all voiced support for plain packaging.

Senator Xenophon says a excise rise was inevitable.

"I guess my message, my free PR advice to the tobacco industry is if big tobacco thinks they're unpopular now, just wait till the public backlash if they decide to take this on in the courts," he said.

But Family First Senator Steve Fielding may not back the excise hike unless more money is put into anti-smoking measures.

"It's outrageous to think that they can slug the community more in tax and not give it back in the area it's needed which is in the tobacco toll," he said.

The tobacco industry has already warned it may challenge the plain packaging requirement in court.

Tim Wilson from the Institute of Public Affairs says taxpayers may have to fork out more than $3 billion a year in compensation to tobacco companies.

"Stripping intellectual property from products is akin to stripping someone of their physical property, and requires compensation," he said.

But Mr Rudd says the Government will not be forking out any compensation.

"We the Government will not be intimidated by any tobacco company," he said.

"Tobacco companies are going to die in the ditch opposing this sort of packaging."

Concerns have also been raised that the plain packaging will make it easier to import illegal tobacco.