"It is the first time in a constitution that the prime minister can hold only two consecutive terms," said Tongthong Chandransu, a member of the 35-strong panel picked by the military to write the draft constitution.
The government and coup leaders have pledged to hold a referendum on the new constitution in September ahead of national elections expected in December.
"The draft constitution aims to fully restore democracy and organise national elections within 2007," the Constitution Drafting Council said in a statement after releasing the charter on its website.
"The 1997 constitution created monopolies, abuse of power, lacked transparency, and created a lack of ethics in politics."
Other measures in the proposed new constitution include a cut in the size of parliament's lower house to 400 members from 500, and the upper house, or senate, to 160 from 200.
It also changes the senate from an elected to an appointed body, stipulating that the new body will be appointed by judges and heads of independent agencies.
The drafting committee said they wanted to avoid a repeat of the past senate, which had been criticised as a rubber stamp for the Thaksin administration because it was filled with members of his Thai Rak Thai Party.
Coup leaders scrapped the previous constitution when they took power last September from Thaksin.
The draft makes no mention of any role for the military in the future government.
Shortly after last September's coup, an interim constitution written by the military-installed government gave the coup leaders immunity against future prosecution.
Pro-democracy advocates have raised fears that the military would try to find a way back into politics despite the enactment of a new constitution, as happened after the country's last coup in 1991.