Cabinet has approved a proposal by Communications Minister Malcolm Turnbull to introduce a two-tiered pricing scheme for letter deliveries that is expected to see basic stamp prices increase to $1.

The reforms will allow Australia Post to introduce a "regular" and "priority" letters service. Letters sent with a "regular" stamp will arrive an average of two days later than they do currently, with mail within metropolitan areas arriving a day later than the current timetable.

Australia Post plans to increase the price of a postage stamp to $1. Credit:Jessica Shapiro

Australia Post was expected to apply to the Australian Competition and Consumer Commission to increase the cost of a "regular" stamp from 70 cents to $1 when the new regulations come into effect.

Safeguards will be put in place so that prices remain frozen at current levels for concession card holders, including pensioners. And Christmas cards could still be sent with a 65 cent stamp, Australia Post chief executive Ahmed Fahour said at a press conference in Melbourne on Tuesday.