But plans for 60% of its members to be political appointees have prompted claims the government is trying to preserve its powers of patronage.
The plans would mean only a fifth (20%) of members would be directly elected, despite more than 100 Labour MPs signing a Commons motion calling for that number to be much larger.
The government white paper proposes that the final 20% should be crossbenchers chosen by an independent appointments commission.
Click here to see how the proposed chamber would look
Speaking on Wednesday afternoon, the Commons Leader Robin Cook confirmed that under the plans the remaining 92 hereditary peers would be removed and 20% of the House of Lords would be elected by the public.
Future members of the reformed house would not become peers - breaking the link between titles and seats in Parliament, he said.
All nominations will have to meet quotas of a minimum of 30% of both men and women, as well as fair representation for the UK's different regions and ethnic minorities.
The Commons Leader said the plans would mean the House of Commons would remain as the pre-eminent chamber in Parliament, with the second chamber having powers of delay, not veto.
"I cannot conceive of having a wholly elected second chamber which would not srtat to regard itself as having equal legitimacy as the House of Lords," said Mr Cook.
Lords Leader Lord Williams of Mostyn argued the changes would produce "a modern second chamber to play its part in a Parliament fit for the 21st century".
'Undemocratic'
Critics of the plans, including senior Labour Party figures, say they do not go far enough for democracy.
There have been reports of splits between Lord Irvine, the Lord Chancellor, who is said to want a smaller elected element, and cabinet members such as Mr Cook, who believe there is a risk of losing democratic credibility.
Former Labour cabinet minister Tony Benn said the plans were taking the Lords back to the 14th century - a move he branded "fundamentally undemocratic".
Any elections for the Lords will be held on the same basis as polls for the European Parliament, conducted on a regional basis with a form of proportional representation using party lists.
With the direct nominations, those plans would mean that the composition of 80% of the upper house was decided on a party political basis.
The government says transition to the new arrangements should take 10 years but it is asking for views on how long members of the reformed chamber should be able to serve.
End for hereditaries
The Conservative Leader in the Lords, Lord Strathclyde, condemned the plans as "shabby and inadequate".
"This is not reform, it is certainly not democracy and it is not even what Lord Wakeham suggested in his Royal Commission."
For the Liberal Democrats, Paul Tyler argued that there was a battle of wills going on in the Labour Party over reforms.
"They are fighting like ferrets in a sack," he said.
There has been criticism too from reform pressure group Charter88, which accused the government of showing "contempt" for voters by regarding electors and elections as "tiresome inconveniences".
The House of Lords, where 704 peers are currently allowed to sit, will be cut to 600 members, including 120 crossbenchers (not affiliated to any political party), said Mr Cook.
Meanwhile the Conservatives have said the timing of the proposals demonstrated the distance between New Labour and the priorities of the British public.
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