Carriages would not be permitted on public roads in the CBD area, bound by Flinders Street, Spring Street, La Trobe Street and Spencer Street, under the plan.
Operators will still be allowed to drive the carriages outside this zone within the City of Melbourne, with pre-booked passengers.
Roads Minister Ben Carroll said the state government proposal, which will be subject to consultation over the next month, would ensure safer streets and protect animal welfare.
"We've heard the community's concerns about horse-drawn carriages and this proposal will improve safety for everyone on some of our busiest streets," he said.
"We will continue to work with our road safety partners, RSPCA and the community to ensure animal welfare and safety across the industry."
Melbourne Lord Mayor Sally Capp said the proposal would improve safety on some of the city's busiest roads and allow for better management of horse-drawn carriages.
"We know that road and footpath space in the Hoddle Grid is at a premium, which is why we need to keep people moving as best we can," she said.
The government will consult with carriage operators and stakeholder groups until January 2022, before further information on the plan is released early next year.
The proposal follows a Melbourne City Council ban on issuing street trading permits for horse-drawn vehicles in 2017.
In April this year, the council passed a motion calling for a forum to discuss the future of horse-drawn carriages.
That forum was held in September and included the state government, Lord Mayor, vehicle operators and industry stakeholders including Yarra Trams and the RSPCA.
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