Whistleblowers and journalists who reveal national secrets won't face severe jail terms after the government decided to scale back controversial spying laws.
But Labor wants it to also revisit other bills included in the latest suite of national security measures.
The Turnbull government last year announced legislation tackling what it said was the growing threat of foreign states trying to influence Australia's political landscape.
The proposed laws will now be rewritten to protect journalists and their sources after media organisations said they could "criminalise" journalism.
"There is no desire by the Turnbull government to limit the legitimate work of journalists or their employers," Attorney-General Christian Porter said on Thursday.
"A free media is a foundation of our democratic system."
The laws, which are still in draft stage, will be rewritten to narrow the definition of "conduct that would cause harm to Australia's interests" to protect public servants who leak to journalists.
Offences that apply to non-public servants will now only be applied to the more serious and dangerous conduct.
Journalists, editors and support staff also won't have to demonstrate their reporting was "fair and accurate", as long as they reasonably believe their conduct was in the public interest.
Media organisations said the laws originally contained provisions that could have jailed journalists and whistleblowers for up to 20 years.
Labor has cautiously welcomed the announced changes and wants the amendments to be scrutinised by a parliamentary committee.
But shadow attorney-general Mark Dreyfus said the other three bills in the government's latest suite of national security changes - on foreign donations, establishing a foreign influence transparency scheme, and setting up the Home Affairs portfolio - also need amending.
"What's happened over the summer ... (is) a howl of outrage from not just journalists but from charities, from business organisations, from the universities of Australia," he told ABC radio.
"They've all said that the four bills, not just the one bill on espionage and secrecy, but the four bills the government introduced, are all an overreach."
Crossbench senator - and a journalist of 55 years - Derryn Hinch wanted to see the detail of the rewrite before dropping his opposition to the changes.
The Law Council said the government's backdown was a shift in the right direction.
"Although these amendments do not allay all of the Law Council's concerns, and more work is certainly needed, these initial amendments all appear to be positive," President Morry Bailes said.
Mr Porter said laws needed modernising to protect Australia's democracy from foreign interference.
The Australian Security Intelligence Organisation told a parliamentary committee Australia is in a period "probably more dangerous in many respects than any time since the Cold War".