The legislation to be introduced on Thursday aims not only to crack down on those who have targeted Muslims since the 11 September 2001 attacks on the United States but also to curb extremist Islamic preachers who urge their followers to commit violence.
The bill, first put forward last year, failed to get through parliament before May's general election and is now being reintroduced.
"This is a long overdue measure but nevertheless is a welcomed first step," Iqbal Sacranie, secretary-general of the Muslim Council of Britain, said last year.
Opponents of the bill say it could curb free speech, limit legitimate debate on religious issues and could even affect comedians.
Rowan Atkinson, creator of the Mr Bean television character warned last December that some of his sketches and others such as Monty Python's 1979 film Life of Brian, which has been criticised for being anti-Christian, could face prosecution under the new law.