Government IT contracts will capped at a maximum value of $100 million or three years' duration, Assistant Minister for Cities and Digital Transformation Angus Taylor has announced.

The Coalition is targeting an increase of 10 per cent of its annual $6.5 billion IT spend to smaller operators, equating to $650 million, Mr Taylor said.

"These are exciting changes that will throw open the door for SMEs and allow government agencies to bring in new and innovative services," he said.

"A cap is now in place to limit the term and value of government IT contracts. We are reducing the number of IT panels to make it easier for small players to supply services. We are actively encouraging small innovators to sell us their ideas."