Abdullah Al-Asheikh, the Saudi justice minister, said: "The new Judiciary Law and Court of Grievances Law were prepared with utmost care and will bring about qualitative change in the kingdom's judicial system."
Two supreme courts, a general court and an administrative court, will replace the supreme judiciary council, which has been the country's highest tribunal until now.
A royal decree issued on Tuesday said the Saudi king had allocated a budget of $1.8 bn "for the King Abdullah bin Abdul-Aziz project to revamp the judicial sector, which aims at upgrading the judiciary and developing it in a comprehensive and integrated manner."
At the moment, judges, who are appointed by the king on the recommendation of the supreme judicial council, have complete discretion to set sentences, except in cases where Sharia outlines a punishment, such as capital crimes.
The justice system has come under heavy attack in the media following several cases of arbitrary sentencing in the kingdom.
Human rights and businesses are likely to be the chief beneficiaries of the changes.