Speaking on the BBC's Andrew Marr Show on Sunday, Labour deputy leader Harriet Harman said people in work should go to the top of social housing waiting lists and the unemployed should take up job offers or lose benefits after two years.
Labour's proposals, which mark a break from the principle that certain social benefits are universal, came days after the government started overhauling a welfare system that costs 200 billion pounds (RM917 billion) a year.
A YouGov poll for The Sun on Sunday showed 67 per cent of voters think the welfare system does not work and needs urgent reform. The issue is set to play a major part in the next election due in 2015.
Labour's welfare policies would be fairer and founded on ensuring a supply of well-paying jobs for all, providing stronger incentives to seek employment, Harman said.
"Work should pay. Secondly, there should be an obligation to take work," she said. "There should be support through a contributory principle, for people putting in to the system as well as taking out."
Under welfare caps and cuts coming into effect this month, households will not be able to claim more than 26,000 pounds each year in welfare. This comes as the government tries to eliminate its underlying budget deficit by the 2016-17 fiscal year, from 6.8 per cent of gross domestic product in the current financial year.
Labour's move came after Finance Minister George Osborne on Thursday upped the temperature of the debate on welfare by saying a man jailed for life for killing six of his children in a fire was the "vile product" of the benefits system.
In a letter to The Sun, Prime Minister David Cameron said the welfare system had "lost its way" and had become a "lifestyle choice for some".
"We are putting fairness back at the heart of Britain. We are building a country for those who work hard and want to get on. And we are saying to each and every hardworking person in our country: we are on your side," Cameron wrote.
Labour led the Conservatives in a YouGov poll of voter intention in the Sunday Times, by 40 per cent to 30 per cent. — Reuters