Minister for Immigration, Citizenship and Multicultural Affairs Andrew Giles announced on Friday, the government would reinstate allowing local councils to hold the ceremonies on days around Australia Day.

The change to the code will allow councils to hold Australian citizenship ceremonies on Australia Day, or on the three days before and after, from January 23 to 29.

Prime Minister Anthony Albanese said he still believes ceremonies should be held on Australia Day, but the rules were "punishing individuals" who were "missing out on becoming Australian citizens".

"We want people to become Australian citizens, and that is why we should not place red tape for ideological reasons in front of that opportunity," Mr Albanese said.

Former prime minister Scott Morrison made the change to restrict local councils to only conduct citizenship ceremonies on Australia Day in 2019.

Under the Morrison rule, councils could be stripped of their right to hold citizenship ceremonies if they refused to comply.

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Former prime minister Malcolm Turnbull did strip the Melbourne city councils of Yarra and Darebin of their citizenship ceremonies powers in 2017 after they voted to stop holding ceremonies on January 26 and stop referring to the day as Australia day, out of respect for Aboriginal and Torres Strait Islander peoples.

Mr Giles announced both the councils would have their power to conduct citizenship ceremonies reinstated.

"Australia Day holds great significance to many people across Australia. Our national day provides all Australians with the opportunity to reflect, respect, and celebrate," Mr Giles said.

While the change allows councils to hold ceremonies before and after Australia Day, Mr Giles said the Australian government still has a "strong expectation that councils conduct ceremonies on January 26".

Shadow Immigration and Citizenship minister Dan Tehan accused the government of trying to abolish the national holiday, however Prime Minister Albanese said he still supports Australia Day.

The Australian Local Government Association welcomed the federal government's announcement, calling it "pragmatic" and a "common sense decision".

ALGA national president Linda Scott said "We have consistently advocated for individual councils to mark Australia Day, and the timing of local events, as a matter for local governments, knowing that we strive to reflect the broad wishes and aspirations of communities".