The proposed change to the constitution to recognise local government will make clear that councils remain under the watch of states, in a bid to allay fears of a Canberra power grab.
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The Gillard government has released the wording of the amendment that will be put to voters at the same time as the September 14 federal election.
Section 96 of the constitution says the Commonwealth can provide financial assistance to any state. The change would see the addition of the words ''or to any local government body formed by a law of a state''.
Local Government Minister Anthony Albanese said on Thursday the wording reflected ''an important, necessary but minor change to the constitution, a piece of housekeeping to ensure that the constitution reflects the modern reality''.
In the face of concerns from the states about whether they would maintain the power to keep councils accountable, Mr Albanese said the proposed change made clear that local governments were created by and accountable to the states.
''The proposed change therefore does not diminish the role of the states with regards to the administration of local government,'' he said.
The latest concerns were raised by Victorian Local Government Minister Jeanette Powell, who warned changes ''could blur the roles and responsibilities between the three tiers of government, leading to poorer overall outcomes for our communities''.
NSW Premier Barry O'Farrell has previously argued an amendment to the constitution could ''fundamentally change'' local government relationships.
The NSW government reaffirmed its opposition on Thursday, with a spokesman for Mr O'Farrell saying: "Our stance of the local government referendum remains the same."
But Mr Albanese said he had sent the wording to the states and territories and he was confident it would ease their fears about losing local government oversight.
''I think it's pretty clear that we've gone out of our way here to get the broadest possible support; the concerns have been taken on board,'' Mr Albanese said.
''This is no diminution of the power of states, this is simply a recognition of the existing reality and that there is a relationship between the national government and local government.''
Local governments have long called to be recognised in the constitution, particularly in light of last year's High Court decision about the federal government's chaplaincy program that raised broader questions about the commonwealth's funding powers.
However, Mr Albanese and Attorney-General Mark Dreyfus said they did not believe federal government programs that directly funded councils would be at risk of legal challenge if the referendum failed.
Mr Dreyfus said the aim of the referendum was to acknowledge the existence of local governments in the constitution, rather than to settle funding doubts.
''It is not driven by any High Court decision,'' he said.
Mr Albanese said he was optimistic the referendum would pass because local communities recognised local facilities were often funded by the federal government.
He also was confident of securing bipartisan support, citing ''constructive discussions'' with the Coalition's local government spokesman Barnaby Joyce.
Opposition Leader Tony Abbott called on Monday for the proposed wording to be revealed, saying the Coalition had ''some reservations about it because we think that the government hasn't done the work necessary to get a yes vote'' and was rushing the process.
Mr Abbott expressed the Coalition's in-principle support for recognising local government in the constitution but questioned whether it should be done at this coming election.
The government has called for community feedback on the draft wording and expects to introduce the bill in Parliament's next sitting fortnight.
