Ministers want a radical overhaul of the House of Lords, including an end to life peerages and quotas for ethnic minorities, a leaked document says.
The number of peers would be cut under the plans
The Sunday Times said Commons leader Jack Straw had also drawn up proposals for half of all peers to be elected and half appointed.
The number of peers would also be reduced by a third, it adds.
The leaked proposals come after years of deadlock on the future of Parliament's second chamber.
The spokesman for Mr Straw said: "This document is Jack Straw's attempt to facilitate cross-party discussion and that discussion is continuing. It is not government policy."
The Sunday Times reports that Mr Straw's ideas are to go to a free vote in the Commons before Christmas.
The plans call for elected peers - who would sit for no longer than three parliamentary terms, a maximum of 15 years - to be paid, rather than claiming allowances, as it currently the case.
This, it is estimated, would mean costs rising from £13.1m to £41.27m a year.
The number of bishops in the Lords would also be cut under the plans.
Mr Straw outlined his suggestions in an 18-page memorandum presented to the cross-party working group on Lords reform earlier this month, it is reported.
In 1999, all but 92 hereditary peers were removed from the Lords.
But, in 2003, an attempt to complete the reform process collapsed.
Seven options, from a fully elected to a fully appointed second chamber, were put forward, but MPs and peers failed to agree on any of them.
Labour's former Cabinet minister Tony Benn, who gave up a hereditary peerage in order to remain in the elected house, said a half-appointed Second Chamber was not good enough for a modern democracy.
Mr Benn told BBC1's The Politics Show: "In a democracy you vote for the people who make the laws you are expected to obey.
"No prime minister wants democracy because he depends on patronage to control the MPs and everyone else."
The Conservatives and Liberal Democrats want 80% of peers to be elected.
Lib Dem constitutional affairs spokesman Simon Hughes said: "Democracy is worth paying for.
"You cannot justify the Houses of Parliament not having a predominance of elected representatives.
"Jack Straw's proposals are a welcome first stab at a package of reforms which were greatly overdue.
"But [he] has so far failed to grasp the fundamental point - the replacement House of Lords must be predominantly elected."
The Conservative Leader in the House of Lords, Lord Strathclyde, said: "We are in favour of replacing Labour's cronyism with an elected House of Lords with more powers which will be better able to hold an over-mighty Government to account.
"This reform process has a long way to go."