The changes were introduced to the House of Representatives on the first day of parliamentary business since the May election.
They follow widespread calls for change after a Victorian childcare worker was charged with dozens of sex offences involving children.
State regulators can already shut a centre on the spot if there is an imminent threat to safety.
But Education Minister Jason Clare said the Commonwealth could also try to lift standards through its available levers.
"We have to do everything that we can to ensure the safety of our children when they walk or when they're carried through the doors of an early education and care service," he told parliament on Wednesday.
"Funding is the big weapon that the Australian government has to wield here.
"The real purpose of this legislation isn't to shut centres down, but to raise standards."
Any childcare operators that fail to meet quality, safety and compliance standards could be prevented from opening new centres and might be cut off from receiving government subsidies, which typically cover a large proportion of parents' fees.
Providers would be issued with a formal notice requiring an explanation within 28 days with the Department of Education able to cancel or suspend an operator's approval.
"Providers that can improve their services to meet the standard will get the chance to do that," Mr Clare said.
"Services that don't or can't or won't will lose their access to funding."
The bill also expands commonwealth powers to publish information about providers that are sanctioned for non-compliance.
State, territory and federal ministers are expected to meet in August to discuss other changes, including mandatory CCTV in childcare centres, establishing a national worker registry and mandatory child-safety training.
Information on centres for which childcare subsidy approvals have been suspended or cancelled can already be viewed on the department's website.
But the legislation would also allow for information to be made public when compliance action is taken against providers, like when an infringement notice is issued.
Commonwealth-authorised officers would also be given more powers to do their jobs through the ability to enter premises without consent during operating hours to detect non-compliance across the sector.
Opposition Leader Sussan Ley said the coalition would need to examine the legislation closely.
"I wanted this issue to be above politics, as somebody who's dropped my own children off at child care and now sees my children dropping their children at child care," she told ABC News.
"I'm incredibly concerned, so I do want to be constructive, but that being constructive doesn't mean giving the government a blank cheque when it comes to goodwill on this issue."
Mr Clare said parents were "not interested in excuses, they expect action".
There were still issues with sharing information on working-with-children checks between jurisdictions, he added, and more work would be done at an upcoming meeting of state and federal attorneys-general.
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