Prime Minister Kevin Rudd's historic change to the way federal Labor elects its leaders is set to be approved by a special caucus meeting next week.

Mr Rudd will use the meeting at Sydney's Balmain Town Hall on Monday to change caucus rules to split the leadership vote 50-50 between caucus and grassroots members.

Under the rule change, an election for leader could be called if a leader resigned or if at least 75 per cent of the members of the caucus signed a petition stating the leader was bringing the party into disrepute.

Candidates for leader would have to be nominated by a minimum of 20 per cent of the caucus.

AAP understands there is a concerted push among caucus members for the 75 per cent rule not to apply if the party goes into opposition after an election.

The leadership is spilled after an election loss.

But there is discussion around whether the threshold should be dropped to a smaller proportion of caucus members, such as two-thirds, to more easily enable a change if the opposition leader is ineffective.

The issue of how to define "disrepute" has also been discussed, but no specific definition is likely to be enshrined in the rule change.

The federal caucus will gather at the Balmain Town Hall on Monday to debate the prime minister's proposal.

The nearby Unity Hall Hotel is one of two foundation places for the ALP in 1891, the second being the Tree of Knowledge in the Queensland town of Barcaldine.

Mr Rudd believes the party must change its structures if it is to boost membership and win back voters.

Treasurer Chris Bowen said the rule change was a challenge for the caucus to accept.

"But I also think that the circumstances in which our leaders should be removed are pretty rare and unusual," he said.

Labor backbencher Stephen Jones told AAP he believed the caucus would approve the change.

"It is a good way of giving party members ownership," Mr Jones said.

"And it gives some certainty to the public that when we go to an election and win it, there would have to be an extraordinary set of circumstances before we changed the leader."

Leichhardt Mayor Darcy Byrne, who is hosting the meeting, told AAP it would be an historic day for his party.

"Having a Labor prime minister with the guts to take on this issue and open the party up to democratic participation is truly groundbreaking," Cr Byrne said.

"It will end once and for all the cancer of leadership destabilisation in the party."

Mr Rudd's rule change has the backing of factional powerbrokers who supported Julia Gillard's installation as leader in 2010.

Sports Minister Don Farrell said the reform addressed voter concern about leadership changes in the ALP.

However the ALP national conference, expected to be convened in 2014, would have the final say on the policy and any other reforms, he said.

 

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