Ministers said in a statement that the transfer from Rent Supplement to a new Housing Assistance Payment will also help improve the quality of private accommodation the State pays for under the schemes.
The change, which is to be piloted early next year by a number of local authorities, will eventually affect over 50,000 households.
At present 83,000 Social Welfare recipients receive a total of €400m in Rent Supplement.
Once tenants are employed for 30 hours a week, the Department of Social Protection terminates it.
In their statement, the Ministers for the Environment, Housing and Social Protection say those long-term recipients will be moved to a Housing Assistance Payment, which will permit tenants to be employed for over 30 hours a week.
They will continue to qualify for a reduced payment and the tenant's own contribution to the rent will increase in line with income.
The Ministers say the reform will remove one of the primary disincentives to taking up work.
They also say it will help improve the quality of private accommodation the State is subsidising.
This is because local authorities, which will administer the new payment instead of the Department of Social Protection, will use their powers to improve the standard of apartments and houses they are willing to pay for.
The other major change will see local councils making the payment directly to the private landlord instead of expecting the tenant to pass it on as is the case at present.
They will also dock the tenants' contribution - at present around €30 a week - from his/her income through a "mandatory deduction facility".
An official spokesman said this would provide more stability for landlords, tenants and the state.
It is estimated that the reforms, which are to be piloted early next year in a number of council areas, will eventually affect over 50,000 households.
Minister for Housing, Jan O'Sullivan described the reforms as "the largest reform of housing support in a generation".
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