A powerful Coalition-dominated parliamentary committee on Friday recommended a wide-ranging prohibition of donations from foreign citizens and foreign entities, citing a need to protect national sovereignty.

The ban would extend to political parties, unions, think tanks and lobby groups engaged directly in political activity, but would not affect charities and non-government organisations engaged in policy advocacy.

"Only Australians should have the power to influence Australian politics and elections," said Liberal senator Linda Reynolds, who chaired the committee.

The move follows a series of controversies last year involving foreign donations on both sides of the political aisle, mainly from Chinese sources. Australia is one of the few comparable nations not to impose a ban on foreign donors.

But a battle now looms over how far to extend the ban, with Labor resisting the government's call for third parties such as progressive lobby group GetUp! - who are required to disclose political campaign expenditure under current laws - to be barred from receiving foreign money.

In its dissenting report, Labor backed the ban on foreign donations to political parties and their associated entities, including all unions formally linked to the ALP.

But Labor MP Andrew Giles, deputy chair of the committee, said the government's approach would extend the ban to "anyone who has a view on anything".

"There's this culture war going on that has very little to do with electoral politics in Australia but a hell of a lot to do with bruised egos in conservative politics, from the Prime Minister down," Mr Giles told Fairfax Media.

The Greens proposed to limit the ban so that third parties, including GetUp!, would be prevented from using foreign donations for campaigning only once the writs for an election are issued.

Coalition MPs united behind a bid to ban foreign donations to other "political actors" outside the current disclosure regime, such as environmental lobby groups who undertook political activity.

"That is the black hole that all of us have identified," Senator Reynolds told Fairfax Media. "There is hundreds of millions of dollars coming in to third parties that is completely unregulated and therefore invisible to Australian voters."

Failure to include third parties could see them turn into US-style political action committees, or PACs, to channel foreign donations, she warned. That would "further exacerbate voter distrust" in Australia's electoral system, she said.

Senator Reynolds acknowledged the ban would be "a complex constitutional and technical challenge for lawmakers" - a task that now lies chiefly with Special Minister of State Scott Ryan. But the government is confident it can construct a bill that will survive legal challenge.

Opposition from Labor and the Greens would make any reform package dependent on crossbench support in order to pass the Senate.

GetUp!, which reportedly took in $300,000 in foreign donations over two years, has been a regular target of conservative forces. Last month Prime Minister Malcolm Turnbull complained the Coalition had been "massively outspent in the election campaign" by Labor, the unions and GetUp!

Senator Ryan accused Labor and the Greens of proposing a "massive loophole" that would see third parties become a receptacle for foreign funds.

"If foreign donations are to be addressed, they need to be addressed comprehensively," he said.

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