Figures from the travel industry show more suspected false insurance claims for illnesses like food poisoning are being brought by British holidaymakers, partly driven by touts in European resorts.
Advice from industry shows the upsurge of claims in the UK - reported to be as high as 500% since 2013 - is not seen in other European countries.
Due to the reported increase in claims, and as many tour operators are settling them out of court, the costs to industry are increasing. This is raising fears of higher package holiday prices for law-abiding holiday makers.
Holidaymakers could face up to three years in prison if found guilty of making a fraudulent claim.
Ministers said they want to reduce cash incentives to bring spurious claims against package holiday tour operators. Under the proposals, tour operators would pay a prescribed sum depending on the value of the claim, making the cost of defending a claim predictable.
A system to control costs exists for most personal injury claims in England and Wales but not for foreign holiday claims.
David Lidington, justice secretary, said: “Our message to those who make false holiday sickness claims is clear – your actions are damaging and will not be tolerated.
“This government is absolutely determined to tackle the compensation culture which has penalised the honest majority for too long.”