The Federal Government has announced it will tighten its regulation of foreign investment in Australian property, in an effort to stem rising property prices.

People on temporary resident visas will now have to be screened and must be approved by the Foreign Investment Review Board to buy property.

They will then have to sell it on departure.

The move comes after Labor's decision to relax the same rules last year.

Assistant Treasurer Nick Sherry says they are reintroducing old restrictions and bringing in tougher penalties.

But the Federal Opposition says the Government has been exposed for another policy blunder.

Shadow treasurer Joe Hockey says the Government's original loosening of the rules had the effect of pushing up prices and putting pressure on the market.

"Kevin Rudd promised the Australian people he would make it easier to buy houses, not harder," he said.

"When he changed the foreign investment rules he made it harder for Australians and now we've seen yet another Rudd Government backflip.

"It is certainly the case that they do not focus on outcomes when they develop a policy ... they focus on politics.

"And this is another example of the Prime Minister lacking the courage to go out and announce that he got it wrong on a policy."

Mr Hockey says the changes are a return to Howard Government policy and a significant policy failure.