Victorians who trade in black market tobacco and vapes will face jail time and potential fines of $1.7 million under planned new laws.

Premier Jacinta Allan on Tuesday announced her Labor government would introduce long-awaited legislation to parliament to establish a tobacco licensing scheme amid Victoria's tobacco turf war.

"The toughest laws anywhere in the nation to crack down on the illegal tobacco trade and to support a regime in this state that is focused on keeping Victorians safe," she told reporters.

"This new, strict licensing regime includes more boots on the ground, more resources on the ground, more powers particularly powers to Victoria police to crack down on the illicit tobacco trade."

Individuals face fines of more than $355,000 or up to 15 years in jail, while businesses will face fines of more than $1.7 million.

More than 100 arsons have been linked to Middle Eastern organised crime syndicates and outlaw motorcycle gangs fighting for control of the lucrative tobacco and vape black market.

Victoria Police's illicit tobacco task force has conducted at least 200 raids, made 80 arrests and seized more than $37 million worth of illicit tobacco, vapes and cash over the past 12 months.

Victoria became the last Australian state or territory without a tobacco licensing scheme in September, when Queensland's regime started.

The NSW Labor government recently introduced a bill to the state's parliament to double the maximum penalties for illicit tobacco sales to $220,000 for corporations and $44,000 for individuals.

In March, Ms Allan committed to setting up a licensing scheme for retailers and wholesale tobacco suppliers after a Better Regulation Victoria review recommended one in May 2022.

A state parliamentary inquiry later found the price differential between legal and illicit cigarettes had fuelled the black market.

By Callum Godde in Melbourne