From February next year, the Government will include a vehicle's engine power as a new criterion to the way Certificate of Entitlements (COE) are classified.
Any car that falls under Category A - with an engine capacity of not more than 1, 600cc - must also have an engine power of 97 kilowatts or less, the equivalent of 130 horsepower.
The change will mean that nearly half of today's mass market cars would be reclassified as premium models, or fall under the COE Category B (for cars with 1,600cc and above).
Transport Minister Lui Tuck Yew, who announced this on Monday, also said the Government will not levy a surcharge on those who own multiple cars.
The change comes after a two month consultation with the public, academics and members of the motor industry on how best to tweak the 23-year-old COE system, which limits the number of cars on the road by requiring car buyers to bid for an ownership certificate.
Among the suggestions were using a vehicle's open market value and a car's carbon emissions to categorise car models, as well as changing the current open bidding system to a pay-as-you-bid system.
The Land Transport Authority, however, rejected those ideas, explaining that they are not effective or efficient measures to address social equity in car ownership.
On the mounting calls by the motor industry and academics to even out the COE supply and stabilise prices, LTA said it is still studying ways to do so.