Consumers will be able to choose power suppliers that offer lower rates from 2016 following a Tuesday decision by the government to liberalize the electricity retail market.

In a set of electricity system reforms approved by Prime Minister Shinzo Abe's Cabinet, the government also seeks to lead major utilities to separate power generation and transmission businesses between 2018 and 2020.

The liberalization of the electricity retail market is a significant reform that will create a more competitive market, allowing diversification of services and prices, through the breakup of major utilities' regional monopolies on household electricity.

It is also hoped that separating the power generation and transmission businesses will promote the spread of renewable sources of energy that have attracted attention since the Fukushima No. 1 nuclear crisis started by paving the way for new entrants into the field.

"Consumers will have a wider choice over the purchase of electricity from operators and in terms of fees. It will also lead to a reduction in electricity payments," Economy, Trade and Industry Minister Toshimitsu Motegi told a press conference.

At a government meeting Tuesday, Abe instructed Motegi to submit a bill to revise the electricity business law during the ongoing Diet session to start the reform process. Under the revised law, a special entity will be created in 2015 to coordinate power supply and demand nationwide to prevent a shortage of electricity.

The upcoming bill will only mention the full liberalization of power sales and separation of power generation and transmission in an additional clause because of the time it will take to see them implemented.

Utilities strongly oppose the plan to separate power generation and transmission, arguing the stability of electricity supplies could be jeopardized if power transmission is freed up for newcomers.