The prime minister has hit "pause" on Australia's annual migration intake as he tries to redirect more new arrivals away from overcrowded capital cities and into struggling regional towns.

Scott Morrison is reducing the number of annually available places from 190,000 to 160,000 for the next four years as he tries to ease pressure on road and rail networks in the country’s biggest cities.

Mr Morrison says Australia has thrived from steady population growth but for the past two decades infrastructure and services have struggled to keep pace.

He points out the vast majority of migrants have settled in the major cities – particularly Sydney, Melbourne, Brisbane, the Gold Coast and Perth – putting significant pressure on roads and public transport.

New visa categories are now being introduced to force 23,000 skilled migrants to spend three years working in regional towns before applying for permanent residency.

International students will be offered enticements to study outside the capitals.

Mr Morrison says he wants ordinary workers in capital cities to spend less time stuck in traffic, and help struggling rural and regional communities inject life into their towns.

He denied concerns about congestion were driven by racism, insisting migrants were not to blame for failing infrastructure.

“Migration and those who have come to Australia to make a contribution, not take one, has been an enormous boon for Australia. We want to continue to encourage that,” he told reporters in Canberra on Wednesday.

The prime minister has also defended the timing of his government’s migration intake announcement, despite it occurring days after the Christchurch terrorist attacks.

He voiced frustration at those conflating the issues for political gain.

“This is a practical problem that Australians wanted addressed, that migrant communities wanted addressed,” he said.

Mr Morrison is certain the plan will have no impact on the federal budget.

“If we were to take the figure below 160,000 that would have had a direct fiscal impact on the budget,” he said.

Immigration Minister David Coleman is confident the 23,000 workers who obtain new regional visas will comply with the requirements.

Mr Coleman said existing state-sponsored regional visas had a 99 per cent compliance rate, and he expects similar figures when the requirements are extended to other applicants.

“Permanent residency is top of the list in terms of the incentives for people. We certainly expect that these will be well subscribed and that there will be a very high level of compliance,” he said.

Skilled migrants should not expect “immigration police” to come knocking on their doors, but rather a “strong self-assessment process” involving demonstration of where people have been, he said.

Workers on the three-year regional visas will also be able to shift between various towns.

“As long as it’s outside the big cities,” Mr Morrison said.

“To maintain the flexibility in that it is really important. Otherwise it becomes an unworkable program.”

Labor is willing to lower the annual migrant intake to 160,000 but leader Bill Shorten has warned against “dog whistling” on population policy.

The number of employer-sponsored skilled migrants allowed into Australia is being bumped up slightly to 39,000 places, but there will be no change to the family stream of the program, which offers 48,000 visas.

International students be granted an extra year of Australian work rights if they graduate from regional universities.