The Federal Government's move to introduce a new law that could curb supermarket power has angered big business.

The Coalition will introduce an "effects test", to make it easier for farmers and other small companies to prove when bigger players use their size and power, to squeeze them out of the market.

Prime Minister Malcolm Turnbull presented the plan, based on a recommendation from the Harper Competition Policy Review, to MPs and senators at a joint-party meeting this afternoon.

"What this will do is ensure that our competition law works better to enable competition, to enable smaller businesses, emerging businesses, to be better able to compete," he told reporters after the meeting.

"We know that while larger firms are often very innovative and very often very competitive, they are more innovative if the hot breath of competition is coming down their neck."

A spokesman for Wesfarmers, which owns the Coles supermarket chain, told the ABC the decision was "disappointing", while the Business Council of Australia described it as poor policy which would work against innovation.

The Retail Council's Anna McPhee said the new law would create legal uncertainty and accused the Government of slapping big business with unnecessary regulation.

She suggested the Prime Minister had caved to pressure from the Nationals.

"Cabinet had made a decision on it and then later decided to kick it down the road again," she said.

Following the leadership change last September, Mr Turnbull promised the Nationals that Cabinet would consider an effects test, even though some Liberals remained unconvinced.

And the Nationals recently warned that there could be "political consequences" if an effects test was not introduced.

Mr Turnbull said today's announcement was a result of proper deliberation, not a political pay-off.

"We had a very good and informed discussion in the Cabinet. We run a traditional cabinet government and it was very valuable, and this is the decision we've come to," he said.

It is not clear whether the legislation will be put to a vote in Parliament before the election.

The Prime Minister has emphasised the need to consult with state and territory governments first.