Controversial ride-sharing service Uber is to become legal in Western Australia, the State Government says.

Uber drivers will need to be licensed, pay an annual fee and get police and medical clearances.

The Government has been prosecuting Uber drivers for operating outside the law, but the service has been widely popular with the public.

In July, the Government released a green paper flagging changes to the industry that proposed more competition and a single licensing regime for all drivers of taxis, Uber vehicles and other similar services.

It made no mention of compensation for taxi drivers.

Transport Minister Dean Nalder said the move would create a safer environment for drivers and passengers.

"What we're doing is establishing a framework and ensuring that we're creating a level playing field," he told 720 ABC Perth.

"Our primary concern is still around safety for drivers and safety for passengers."

The decision has caught the taxi industry by surprise.

What is Uber? An app-based service connecting customers with drivers who use their own cars to provide transportation.

An app-based service connecting customers with drivers who use their own cars to provide transportation. Available in 60 countries and established in 2009.

Available in 60 countries and established in 2009. Uses GPS to find a customer's location and connect them to the nearest driver.

Uses GPS to find a customer's location and connect them to the nearest driver. Customers pay using the app and no cash is handled in the vehicle.

Customers pay using the app and no cash is handled in the vehicle. The price is charged per minute or per kilometre plus a base fee, and can change depending on demand.

The price is charged per minute or per kilometre plus a base fee, and can change depending on demand. Drivers must pass a background check, have insurance and have a registered car.

Drivers must pass a background check, have insurance and have a registered car. Offers a range of service levels - the two most common are UberX and UberBlack.

Offers a range of service levels - the two most common are UberX and UberBlack. UberX is the budget option, which connects registered drivers who use their own, everyday cars to provide lifts for customers. Generally cheaper than a taxi.

UberX is the budget option, which connects registered drivers who use their own, everyday cars to provide lifts for customers. Generally cheaper than a taxi. UberBlack is a more expensive luxury version of UberX, in which customers are picked up in a "high-end" black sedan, by a professional chauffeur with a commercial licence and commercial auto insurance.

UberBlack is a more expensive luxury version of UberX, in which customers are picked up in a "high-end" black sedan, by a professional chauffeur with a commercial licence and commercial auto insurance. Other services include Uber SUV, Uber Lux and Uber Taxi, however these are not available everywhere.

Taxi Industry Forum chief executive Howard Lance said there had not been any consultation about the decision and he first heard about it from the media.

"I am absolutely disgusted and somewhat mortified," he said.

"We sort of half expected it, but I'm just blown away that he does this virtually a day after New South Wales did the same thing."

On Thursday, the New South Wales Government announced it would legalise Uber and offer a $250 million compensation package to the taxi industry.

The ride-sharing service is also legal in the ACT, but not in other jurisdictions.

Mr Lance said some taxi drivers had paid hundreds of thousands of dollars for their plates to operate a taxi business and they needed to be compensated.

"Some of them have paid over $300,000," he said.

"And when you start adding interest on it [the debt] it's an awful amount of money they've forked out and these multi-nationals [Uber] have been given a free ride."

Mr Nalder said he thought taxi drivers would be "quite pleased" with the changes.

"We're reducing licence costs, we're reducing plate restrictions, we're allowing them to compete with the new players in the on-demand space and we're putting in place a mechanism to support innovation and to transition them to grow and prosper," he said.

"Part of this will be seeing a dramatic decline in the charges to the taxi industry which I hope to see either flow through to the customer in lower prices, or I would like to see a greater share towards drivers and the operators of vehicles."

'The end of the cab industry as we know it'

But Stephen Satchell, a former chairman of the Taxi Industry Council who has been driving a cab for 40 years, said the decision would leave many taxi drivers wondering if they have a future.

"I suppose it [the decision to licence Uber] stops the shenanigans, the cloak and the dagger stuff that we've had between the Minister, the department and the public," he said.

"I would say to everyone that the devil is in the detail. There will be cheaper fares, I suppose they will tell us how great that's going to be, but we are going to see how it pans out in the future.

"It's sad. It's the end of the cab industry as we basically know it.

"There will be stronger competition. The fares might be cheaper, might not. We'll see where that pans out, but it's a quantum change.

"This is something that many right wing thinkers out there in the business world think we need, we don't, but let's see where it takes us."

The Government plans to implement the changes from July 1, but Mr Nalder said some changes would be made quickly by regulation, others would require changes to legislation.

While the legislation could be up to 18 months away, Mr Nalder said he would be happy for the industry to implement changes ahead of that time.