The state government on Thursday confirmed it was working on new laws to ban Nazi symbols, such as the swastika, though exceptions will be made for educational or historical purposes, and for other uses.

The legislation will be presented to parliament during the first half of next year.

It comes after a parliamentary inquiry earlier this year recommended the ban, citing a recent rise in neo-Nazi activity.

The government will also take up another recommendation of the inquiry to extend the state's anti-vilification protections beyond race and religion to cover areas such as sex, gender identity, sexual orientation, disability and HIV/AIDS status.

The government is also looking to make civil and criminal vilification easier to prove.

The inquiry was set up by the Legislative Assembly's legal and social issues committee in 2019, just months after the government was powerless to stop a neo-Nazi music festival from taking place.

In January 2020, the police and the local council were also unable to stop a family from flying a Nazi flag above their home in the small town of Beulah.

Opposition police spokesman David Southwick welcomed the government's commitment.

"For too long, frontline police and local communities have been powerless to stop the Nazi swastika being used as a tool to spread hate," he said in a statement.

"More recently we have seen a rise extremist nationalist and racist individuals and groups and this ban will go a long way to take away the symbol that they hide behind."

Dvir Abramovich, the chairman of the Anti-Defamation Commission, said he had been campaigning for four years to outlaw public displays of the swastika.

"I will be lying if I didn't admit to shedding tears of joy," he said.

"This announcement is a resounding triumph for the victims of the Holocaust, the survivors and our brave diggers who died to vanquish the evil Third Reich regime, and a defeat of homegrown neo-Nazis who seek to keep Hitler's legacy alive."

The Victorian Aboriginal Legal Service, Victorian Pride Lobby, Human Rights Law Centre and the Asian Australian Alliance are among groups that also support the proposed reforms.

But the Institute of Public Affairs, a conservative think tank, has labelled the proposed laws as "the most vicious attack on freedom of speech on Australia's (sic) in peacetime history".

"The proposal would give vast powers to the human rights bureaucracy to regulate and censor the opinions of mainstream Australians," IPA research fellow Morgan Begg said.

Australian Associated Press