Ministers who leave office following a “serious breach” of ministerial rules will be stopped from getting pay-outs from October.
The move is part of a package of measures the government says will drive up standards in politics.
Meanwhile, former ministers who take up a job which breaches post-government employment rules will also be asked to repay any severance payment.
As part of the shake-up, the existing watchdog, which has been criticised as “toothless”, will be scrapped.
Conservative shadow minister Alex Burghart said the announcement amounted to “cosmetic re-brands of existing bodies”.
The functions of the Advisory Committee for Business Appointments (Acoba), which vets jobs taken up by former ministers and senior officials to avoid conflicts of interest, will be split between existing bodies.
The government said a new Ethics and Integrity Commission would replace the Committee on Standards in Public Life, established in 1994, which advises the prime minister on upholding ethical standards.
It will be chaired by Lt Gen Doug Chalmers, a former military chief who currently chairs the committee.
Currently ministers are entitled to a severance payment equivalent to three months’ salary when they leave office for any reason, regardless of how long they have been in the job.
This has led to outrage over payments worth thousands of pounds for ministers who were in the job for just a few weeks, including during Liz Truss’s short-lived premiership.
Under the changes, which will come into effect from 13 October, ministers who leave office having served fewer than six months, or following a “serious breach” of the Ministerial Code, will no longer get the payment.
Ministers who return to office within three months of leaving will also forgo their salary until the end of that three-month period.
It will be for the prime minister to decide whether there has been a “serious breach” and to ask for severance pay to be stopped.
Meanwhile, the system for vetting post-government jobs is being strengthened so former ministers face a financial penalty if they seriously breach the rules, and will be asked to repay any severance payment.
Currently ministers must seek advice from Acoba about any job they wish to take up within two years of leaving office, a period during which they are also not allowed to lobby the government.
Advice from the committee can range from delaying taking up the role, not taking part in certain activities, or not taking the job at all.
However, Acoba has no way of forcing people to comply with its advice and cannot sanction former ministers.
High-profile examples of this include Boris Johnson, who has been found by Acoba to have breached its rules by not seeking advice from the watchdog before taking up columnist roles, but faced no penalty.
The Cabinet Office said the new Ethics and Integrity Commission would have an expanded role, including a new obligation to report annually to the PM on the health of the standards system.
The government said it was also committing to responding to all the commission’s reports in a “reasonable timeframe”.
Cabinet Office Minister Pat McFadden said: “This overhaul will mean there are stronger rules, fewer quangos and clearer lines of accountability.”
Anti-corruption campaign group Transparency International UK welcomed the plans, but warned that without legally-enforceable penalties “rule-breaking can still go unpunished”.
The Liberal Democrats said the measures were “the right step after years of Conservative sleaze which did so much damage to standards in public life”.
However a spokesperson added: “It shouldn’t have taken a year to set up the Ethics and Integrity Commission – and there will be no excuse if the government attempts to kick these vital issues into the long grass.”
Labour has long promised to strengthen the rules on post-government jobs and lobbying, with the pledge included in the party’s election manifesto.