The Government has approved a 2% cap on rent increases in rent pressure zones (RPZs).
A RPZ is a designated area where rents cannot be increased by more than general inflation and applies to new and existing tenancies unless an exemption is being applied.
The Residential Tenancies Board said RPZs are located in parts of the country where rents are highest and rising, and where households have the greatest difficulty finding affordable accommodation.
The new annual cap will only operate when general inflation is higher than 2%.
The Government said the measure will "result in far lower rent increases for tenants".
The previous cap of 4% on annual rent increases was replaced on 16 July 2021, with rent increases in RPZs currently prohibited from exceeding general inflation as recorded in the Harmonised Index of Consumer Prices (HICP).
The Government said this was to bring about far lower rent increases for the estimated 74% of all tenancies which are in RPZs.
The HICP averaged 0.73% over the three years to July 2021, but the Government said there has been an "unexpected rise" in HICP inflation.
The new rent increase cap of 2% per annum will apply under this Bill when the HICP inflation rate is higher.
The Minister for Housing said the measure "respects the constitutionally protected property rights of landlords" and aims to safeguard "continued investment in the sector by existing and new landlords to deliver the requisite supply of high-quality rental accommodation".
"In addition to significantly reducing the level of rent increases in RPZs, the Bill will also address long-term security of tenure by introducing tenancies of indefinite duration. This was a key commitment in Housing for All, our new housing Plan for Ireland," Darragh O'Brien said.
"This Government is fully committed to improving the situation for renters in Ireland and we are making strides in this regard," he added.
Key provisions of the measure are to form part of the Residential Tenancies Bill to be published this month, with the cap to apply immediately from enactment.
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Earlier, Sinn Féin's housing spokesperson said the party will not oppose plans to cap rent at 2% or to inflation if it is lower.
However, Eoin Ó Broin warned that the plan will not work and said it is another example of a minister who is out of touch and ideas.
He said there are many loopholes in the legislation and it is too hard to police.
Mr Ó Broin called for the entire State to be subject to rent regulations.
He said Sinn Féin wants to create a refundable tax credit that would "put a full months rent back into the pocket of every renter for three years".
Speaking on RTÉ's Morning Ireland, he said the Government has failed to significantly increase direct State investment in the delivery of good quality rental accommodation in the budget.
He said there was a need to dramatically increase the supply of affordable rental stock.
Mr Ó Broin said around 23,000 rental properties in the market have been lost since 2017 and a plan needs to be put in place to stop this.