Plans to stop hate speech and dangerous content running rampant on social media will be opposed by the opposition, which says they amount to censorship.
The coalition held a party room meeting on Thursday after it was divided on the government's digital duty of care bill, and ultimately decided it would not support the legislation.
Under the government's proposed laws, social media companies would have to identify and mitigate harmful content for users under 18, including content encouraging disordered eating, pornography, harmful ideas about women, bullying and life-endangering stunts.
For adult users, illegal content would need to be monitored and quickly removed, along with posts that promoted terrorism, child exploitation and sexual violence.
The communications minister would be given a high level of discretion to determine if content should be removed.
After the coalition meeting, Liberal Leader Angus Taylor said the legislation was not acceptable in its current form, meaning the government will likely need minor-party support for it to pass.
"The reality is, it's providing a blank cheque for political censorship to the minister to the government.''
Mr Taylor stressed that the opposition was concerned about the harm social media caused to children, particularly in instances where people had died by suicide as a result of online content.
"We are always willing to work with the government to protect kids against serious harm," he said.
"What we don't support is a political censorship bill, and sadly, that's what we have in front of us."
Opposition communication spokesperson Sarah Henderson said the draft legislation, originally intended to be announced later in September, had been "ham-fisted" and rushed, while giving sweeping powers to the minister.
Laws to strengthen the under-16s social media ban, which has been widely regarded as a failure since it was implemented in December, passed the Senate on Thursday morning.
It allows the eSafety commissioner, currently Julie Inman Grant, to compel access to information for investigating social media use by children.
The maximum fine for company non-compliance will double to just over $100 million.
To date, no companies have been penalised as a result of non-compliance.
The Greens backed the bill, although they raised concerns about the maximum fine being too lax, but the coalition did not.
Mr Taylor said the bill gave "unfettered powers" to the commissioner and communications minister, which would lead to further censorship.
Separately, the government has announced social media users would be able to decide if they wanted to keep algorithms or have a linear feed that prioritised the posts of their friends.
It came after sustained campaigning from advocacy group Teach Us Consent, which argued that algorithms were radicalising young men particularly, with misogynistic "manosphere" content.
Senator Henderson said she was "seeking transparency in relation to algorithmic parameters", but she stopped short of agreeing to opt-outs.
"We know that some of these algorithms are driving home and they are driving harm, and there does need to be a serious debate," she said.
The draft digital duty of care bill is open for public submissions until late September.
