All elective surgery other than the most urgent procedures will be put on hold to free up capacity in hospitals dealing with coronavirus.
At the same time, the federal government is funding up to 1000 refresher courses to get nurses back into work.
State and federal leaders have agreed to indefinitely suspend all category three and most category two surgeries from midnight.
The cancellations will apply to both public and private hospitals.
The move to suspend would also help free up resources needed by healthcare staff, the prime minister told reporters in Canberra on Wednesday.
"This will allow the preservation of resources like personal protective equipment and health services to prepare for their role in the COVID-19 outbreak," Scott Morrison said.
Health Minister Greg Hunt announced the government would be subsidising nurse refresher courses to help bolster numbers in the health system.
The government will give the Australian College of Nursing $1 million to run online courses, which include training on coronavirus infection control.
Labor's health spokesman Chris Bowen has said the government should consider blocking the upcoming annual price rise to private insurance premiums.
"I recognise this is a complicated issue ... but anything which can take pressure off people at a time when budgets are under enormous pressure should be very much considered," Mr Bowen told reporters in Sydney.
The decision to suspend unnecessary surgeries was quickly welcomed by the Australian Society of Anaesthetists.
"The only way Australian hospitals can effectively prepare for an influx of patients is if we have the time to devote resources to this preparation," president Suzi Nou said.
"We believe that the health system is not yet ready to cope with the likely massive demand for our services."
But Dr Nou said this was just the start and further action with containment measures would be needed.
Category one and two surgeries are classified as urgent and semi-urgent respectively, while category three surgeries are recommended to take place inside a year.
Mr Morrison said only urgent category two cases would be allowed for surgery.
Before the prime minister's announcement, Australian and New Zealand medical colleges warned unnecessary surgeries were soaking up precious resources needed to fight the pandemic.
Meanwhile, the federal health department said there were now 2252 cases of COVID-19, with eight dead, 17 in intensive care and 197 hospitalised.
Australian Associated Press