Certain CBRC and CIRC functions, including drafting key regulations and prudential oversight, are to be moved to the central bank, the proposal said.
Divided between China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC), regulators now oversee different parts of China's complex financial sector, and no single regulator has a complete picture of capital movements in the system.
State Councillor Wang Yong told delegates of the parliamentary session underway in Beijing that the bureaucratic shuffle was needed to make government more effective and efficient.
Since the beginning of past year, Beijing has cracked down on leverage and risky market practices, with China's various regulators releasing a flurry of new rules in an attempt to rein in risks.More news: #WandsReady - Fantastic Beasts: The Crimes of Grindelwald Trailer Tease
Liu He, President Xi Jinping's top economic adviser, is overseeing that battle on financial risk and praised the reforms as "revolutionary" in an editorial published in Communist party mouthpiece the People's Daily on Tuesday.
Several new ministries will be created, including a more encompassing Ministry of Agriculture and Rural Areas as well as ministries for emergency management, ecology and environment, and veteran affairs.
The draft also includes a new immigration bureau and changes to the tax system.
China has also proposed forming a national markets supervision management bureau, which will take on broad responsibilities including antitrust and product safety.More news: New 2018 Ford Fiesta ST: Limited Slip-Diff, Launch Control and more
"Finance is core to a modern economy and we must pay high attention to prevent financial risks and safeguard national financial security", the proposal said, adding that it is meant to fix any overlaps in regulatory oversight.
It is the biggest overhaul in the regulation of the industry since the creation of the CBRC in 2003.
The proposed changes put forth in the document are expected to be approved by the National People's Congress legislature, which ends its session next Tuesday.
There will be new administrations under the state council or the central cabinet, such as an global development cooperation agency and a state immigration administration. The regulators have focused on curbing the growth of wealth management products, trust products, and interbank liabilities, which fuel a vast parallel-financing industry in China.More news: Bears to sign Super Bowl hero Trey Burton
Speculation that China was considering the creation of a super financial regulator has been rife since the Chinese stock market crash of 2015, blamed in part on poor inter-agency coordination.