The country's "technical intern" program was launched three decades ago and has long been criticized by campaigners as a hotbed of abuse and discrimination.
The scheme is supposed to offer skills to overseas "trainees" in sectors such as construction, agriculture and food processing.
But Japanese firms have been accused of treating participants as cheap, temporary workers, some of whom take on huge debts to come to Japan.
Draft recommendations by an immigration agency expert panel called for replacing the system with one that recognizes Japan's need for labor and its wish to train people from less developed countries, the official told AFP.
In a document released Monday after months of discussions, the panel highlighted the "discrepancy" between the program's goal and the reality faced by young interns.
In 2022, the scheme had around 320,000 workers from countries including Vietnam, the Philippines, Indonesia and China.
It has been a valuable source of labor for Japan, which has the world's oldest population after Monaco and strict immigration laws mainly courting highly skilled foreign workers.
The panel aims to submit its first proposals to ministers in the coming weeks before issuing an official policy recommendation after the summer, the official said.
