Ministers are vowing to close “a gap in consumer rights” which can leave tourists stranded abroad, or out of pocket, if a company booked online stops trading.
Under the proposals, a total of 10 million internet bookings will enjoy the same protections as if holidaymakers had used a high street travel agent, the Government said.
The online site putting together the package would be made responsible for the entire holiday – even if some elements, such as hotels and car hire, are provided by third parties.
However, the Department for Business, Energy and Industrial Strategy quietly acknowledged it was required to act by an EU regulation coming into force next summer.
The Package Travel Directive was agreed by EU member states at the end of 2015 and must be brought in by next July, regardless of the vote for Brexit.
It is the latest in a string of consumer-friendly “announcements” which have either been forced on the Government by action in Brussels, or required EU-wide agreement.
Ministers have boasted of axing roaming charges for people using mobile phones abroad and of ending “rip-off charges” for paying by debit and credit card – both brought in through EU regulations.
Margot James, the consumers minister, said the latest action would also require travellers to be given better information about their refund rights at the point of booking.
Currently, the explosion in online bookings had left half of holiday arrangements without proper protection, according to the travel association ABTA.
“While consumer laws protect millions of holidaymakers from the fallout if a travel company goes into administration, the way we book holidays has changed significantly in recent years and it is important that regulations are updated to reflect this,” Ms James said.
Holidaymakers would be “safe in the knowledge that they will get their hard-earned money back if something does go wrong”, the minister added.
She urged travel agents, booking sites, trade associations and consumer groups to respond to the consultation being launched today, which runs for six weeks.
The consumer group Which? gave a guarded welcome. Managing director Alex Neill said: “Holidaymakers should be able to book their trips without worrying about whether they will be protected if their travel agent, airline, or hotel goes bust.
“The Government must make sure gaps in protection are addressed so that consumers have peace of mind however they book their package holiday.”
Confusingly, a bill is already going through the Commons to boost protections for online holiday bookings, but this only covers flights.