JULIA Gillard has announced that Australians will be asked to "vote yes" in a referendum on including local government in the constitution when they go to the polls on September 14.

Ms Gillard said the move had bipartisan support and was important to recognise a significant level of government in our society.

"I will be asking Australians when they go to the polls to vote yes to communities, to vote yes to local government," Ms Gillard said in Brisbane.

"This referendum will be presented in a bipartisan spirit. The Leader of the Opposition has indicated he would be prepared to support this."

Local Government Minister Anthony Albanese said the referendum would recognise "the reality of modern Australia".

"Local government has long ago moved beyond being rates, roads and rubbish," Mr Albanese said

"The change will not impact the relationship that local governments have to state governments."

The move was immediately welcomed by local government groups.

Recommended by a parliamentary committee, it comes after a recent successful High Court challenge to the federal government's school chaplaincy program put in doubt other federally funded schemes.

The draft legislation and the proposed words on the referendum will be released shortly.

"We are asking the Australian people to support a small but important change to our constitution so that the existing practice of Federal Government support for local communities is formally recognised in our constitution," Ms Gillard said.

"In just the last five years, the Commonwealth has partnered with local government to deliver over 6000 community projects such as libraries, indoor and outdoor sporting facilities, pools, walking trails, roads and bridges, in every single community."

The referendum may be uncomfortable for Opposition Leader Tony Abbott, following recent reports several in his party room oppose his in-principle support for it.

It was feared the extra task for voters may muddy normal election voting.

It has also been speculated that two states, Victoria and Western Australia, may campaign against the move over fears it would diminish the role of the states.

Ms Gillard said that "the change will not diminish the role of the states with regard to the administration of local government. Recognition in the constitution does not alter the fact that local governments are created by and are accountable to state governments".

It will be the third time a referendum on local government recognition will be put to the Australian people.

In 1974 and 1988 votes on the issue were unsuccessful.

Mr Albanese said the issue was being put to the Australian people at the same time as the federal election to “minimise costs”.

It is estimated to come with a price tag of $80 million.

The referendum will seek to change section 96 of the constitution, which allows the commonwealth to make payments to states.

Legislation on the vote will likely be introduced to parliament when it returns next week.

