He also pledged on Saturday that the reform would be in accordance with the nation's constitution.
Putin said "international terrorists had declared a full-scale war" against Russia, and that due to the collapse of the Soviet Union, the nation was weakened and unable to respond as effectively as it must.
"In general, we need to admit that we did not show an understanding of the complexities and dangers of the processes occurring in our own country and in the world," he said in a grim televised address to the nation.
"In any case, we couldn't adequately react... We showed weakness, and weak people are beaten."
He noted in particular that Russia's borders had become porous and "unprotected from either West or East", and that corruption had pervaded the law-enforcement agencies.
Putin called for mobilising the nation before what he called the "common danger of terrorism". He said measures would be taken to strengthen Russia's territorial integrity, create a more effective crisis-management system, and overhaul the law-enforcement organs.
"We showed weakness, and weak people are beaten"
Putin said some foes wanted to tear off parts of Russia, and others were helping them. "They help, supposing that Russia, as one of the greatest nuclear powers, still poses a threat to them. So they have to get rid of that threat."
Putin vowed never to give in to armed fighters, and that in order to fight them, Russians could not continue living in a "carefree" way.
"We are obliged to create a much more effective security system and to demand action from our law-enforcement organs that would be adequate to the level and scale of the new threats," he said.