Australian Prime Minister Julia Gillard is pushing to overturn a ban on sales of uranium to India.
The move follows a landmark US agreement to support the civil nuclear programme in India, which is seen by Washington as an economic and geopolitical counterweight to China.
Asia's third-largest economy has long complained about the ban. Uranium from Australia would help it meet an ambitious target for nuclear energy growth, hampered by fuel shortages even at existing plants.
Australia has refused to sell nuclear material to India because it has not signed the Nuclear Non-Proliferation Treaty (NPT). Gillard's ruling Labor party will debate lifting the ban at its conference next month.
"I believe the time has come for the Labor party to change this position. Selling uranium to India will be good for the Australian economy and good for jobs," Gillard said.
"This will be one way we can take another step forward in our relationship with India. We have a good relationship with India, it is the world largest democracy, a stable democracy."
The move is set to spark heated debate at the party's December conference, but should easily pass with support from Labor's dominant right faction. The policy does not need to go to parliament for approval, but the conservative opposition also supports uranium sales to India.
Gillard's comments came on the eve of US President Barack Obama's visit to Australia and would bring Australia's uranium policy into line with the United States.
"We welcome this initiative," India's Foreign Minister S.M. Krishna told reporters. "We attach importance to our relations with Australia, which are growing across the board. Energy is one of the key areas of bilateral cooperation."
Washington in 2008 signed a landmark civil nuclear agreement with India over the use of uranium for nuclear energy.
Critics accused the United States of undermining the global non-proliferation regime, but the deal was seen by President George W. Bush as the centrepiece of a new strategic relationship with India.
Australia, one of the United States' closest allies in the region, supported the US-India nuclear agreement as a member of the 46-member Nuclear Supplier's Group, but had continued to refuse to sell uranium to India.
Gillard said the policy shift would apply only to India and not open up potential sales to Israel or Pakistan, as only India had sought and received an exemption from the International Atomic Energy Agency and the Nuclear Suppliers Group.
"So that puts India in a class of its own," Gillard said. "When you look at other nations, whether it be Pakistan or Israel, they are not in that same class."
Australia has almost 40 per cent of the world's known uranium reserves, but supplies only 19 per cent of the world market. It has no nuclear power stations.