People who are sentenced to less than three years in prison will be able to vote at next year's general election.
Justice Minister Andrew Little announced this evening that this group of prisoners would have their voting rights restored.
The proposed change would return the law to how it was before 2010, when a National Party bill removed voting rights from all sentenced prisoners.
"We plan to make this change in an Electoral Amendment Bill before the next election, so that people sentenced to less than three years imprisonment can participate in the 2020 election," Little said.
The prison population is currently just under 10,000 people. Around 3700 prisoners on remand can already vote. The proposed law change would allow another 1900 inmates to vote.
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The Government announcement followed a report from the Waitangi Tribunal that found the 2010 law change was inconsistent with the Treaty of Waitangi and disproportionately affected Maori prisoners.
The High Court earlier declared that the law was inconsistent with the New Zealand Bill of Rights - which was later upheld by the Court of Appeal and the Supreme Court.
"This threshold of a three-year jail sentence means those prisoners will be able to vote on the Government that will be in power when they are released," Little said.
"It is right that someone who is going to be released back into the community during a Parliamentary term should have the right to have a say on who leads them during their time of freedom."
Little said the law change would also address the concern that prisoners were not re-enrolling once they left prison. As part of the proposed law change, longer-term prisoners will also be enrolled on release.
"This will ensure people sentenced to three years or more in prison can re-engage with the democratic process as easily as possible," Little said.
The change would be short-lived if the Coalition Government was not re-elected.
Leader of the Opposition Simon Bridges said this evening that National would restore the ban if his party came to power next year.
"This proves Labour is soft on crime and is more focused on criminals than victims for whom it's done nothing," he tweeted.
"If you do the crime you should lose your rights and do the time. National will change this back after the election."
The Green Party had led calls in Parliament for the ban to be overturned.
Justice and electoral issues spokeswoman Golriz Ghahraman said the Government's decision was a win for equality.
"New Zealand should be a place where no matter your circumstances you have a right to cast a vote", she said.
"Considering our proud history fighting for the women's right to vote, I think many would be shocked to hear that right now incarcerated New Zealanders, predominantly Māori, are deprived of this basic liberty."