But Turnbull said it was not adequate to judge whether a person would accept "Australian values".
"English language proficiency is essential for economic participation".
But the minister signalled tougher measures would be announced in coming months as reports emerged the government was considering a new visa classification of "provisional migrant".
Prime Minister Malcolm Turnbull said that system "displaced a lot of Australians from entry-level jobs", adding that "We are an immigration nation, but the fact remains that Australian workers must have priorities for Australian jobs".
Australians hit social media to question or mock what "Australian values" were, with the hashtags #AustralianValues and #ausvalues trending on Twitter.
Maranoa MP David Littleproud said the process - which migrants must undergo to become a citizen - will reflect "our" values as the Coalition Federal Government today outlined its strengthened Australian citizenship reforms.
Turnbull said this test was not not enough to assess whether an applicant has understanding of and commitment to "Australian values" and responsibilities.
Amendments to the citizenship law will be put to parliament shortly. "But that has to be led by intelligence, related to security and subject to the rule of law". Dutton also mentioned that applicants' records will be checked to guarantee that they were not perpetrators of domestic violence because these kinds of people, according to Dutton, should not become Australian citizens.
"There is just a skill shortage in Australia, it's not that there is a lack of people to do the jobs, it's just they don't want to do these jobs", he said.
Hundreds of jobs in danger as Debenhams boss announces warehouse closures
He said he wanted to de-clutter stores after customers complained it was like a "treasure hunt" shopping in some branches. The group said it will report back with more details on the plans and global markets being eyed for exit in October.
"It accuses all immigrants. of not adhering with some confected notion of Australian values", GetUp human rights director Shen Narayanasamy said in a statement.
The old test fixated on historical and political questions, like what does the Governor-General actually do - a mystery to nearly every Australian.
"Citizenship is at the heart of our national identity and it's the foundation of our democracy".
Dutton emphasised that the government was not asking applicants to abandon their culture or citizenship "but when you decide to come to our country you decide to abide by Australian laws... and adopt Australian values".
In Australia's multicultural society, under which circumstances is it permissible to cut female genitals?
Under what circumstances is it appropriate to prohibit girls from education? "If they're of working age and have an ability to work, I want them working, not on welfare".
"The very simple truth is, in the West, while not every act of terrorism is done by Muslims, sadly, the overwhelming majority are".
But Dutton denied they were targeted at a particular religion.
"Our country shouldn't be embarrassed to say we want great people to call Australia home".
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