Money paid as a deposit on rented accommodation will be held by a third party under new rules to protect tenants from unscrupulous landlords.
Jan O'Sullivan, junior minister responsible for housing and planning, revealed the plan as the country's leading housing charity Threshold said the issue was its biggest source of complaints last year.
Some 20,000 people contacted the organisation claiming the illegal retention of money by landlords.
The Government initiative to improve tenants' rights would see Ireland adopt an international standard, common in the UK, where deposits are held by an independent third party and not the landlord.
"It makes sense that we would follow suit, and introduce a similar solution in Ireland. This is something we have sought for many years," Threshold chief executive Bob Jordan said.
The charity's annual report also revealed more than 1,600 people reported poor standards in private rented homes with the most common problems including broken or ineffective heating systems, poor ventilation and dampness.
Threshold said in some cases landlords refused to carry out repairs and many properties had been neglected completely since the onset of the recession.
Mr Jordan said the average deposit being paid by renters was about €800 and some landlords routinely withheld the payment at the end of a lease.
"A typical deposit of €800 represents the life savings of a low-income family and its loss can put them at risk of homelessness. Some landlords routinely withhold deposits, or allege that the tenant has damaged the property when this is clearly not the case," he said.
"The problem of deposit retention has become more acute in recent years because many landlords themselves are facing financial difficulties and simply don't have the money to hand back. The current system whereby the landlord pockets the deposit at the beginning of the tenancy simply does not work."
Ms O'Sullivan said the issue would be a priority for her next year.
"The issue of deposit protection is a persistent source of complaint for some tenants. The deposit protection scheme will provide a fair, transparent solution to this issue, a solution that will be of benefit to both landlords and tenants," she said.
Threshold also used its report launch to warn that families are facing the triple dilemma of being forced to live in substandard accommodation due to rising demand and prices and failures by local authorities to enforce standards.
A survey by the charity found almost 40% of local authorities were unaware of their responsibilities to inspect private rented accommodation.
All 34 county and city councils were surveyed and some of the headline findings included:
* Thirteen councils thought they had no role in inspections of private rented accommodation.
* These councils were either unsure who was responsible or wrongly suggested it was a matter for the Health Service Executive (HSE) or the Private Residential Tenancies Board.
* Four local authorities had information online that referred to outdated standards dating back to before 2008.
* Two used out of date regulations when carrying out inspections.
* A number of local authorities indicated they did not have the resources for inspections.
Senator Aideen Hayden, chair of Threshold added: "The current system in unacceptable.
"Local authorities have neither the capacity nor the interest to effectively enforce minimum standards. As a result, tenants have no real way of knowing whether a property complies with the law before they move in. Some problems are invisible, and a lick of paint can hide a multitude."
Threshold has called for a certification system to replace the existing inspection and enforcement system.
"We really want to see local authorities take a much bigger effort and much bigger interest in going out and inspecting rented properties and upholding the law" said Mr Jordan.
"Desperate tenants will take anything, and it's really the job of the State to protect them from unscrupulous landlords."