The proposal, which passed the lower house, would introduce a four-year waiting period for permanent residents, tough English language requirements and a test on Australian "values".

But the changes are set to be blocked in the Senate by Labor, the Greens and now the NXT, which confirmed its position to Fairfax Media on Tuesday.

"We will not be supporting the bill's passage through the Parliament," NXT senator Stirling Griff said. Mr Dutton's plan was "an attempt to fix problems that don't exist", he said.

"We're a nation built on migration and the envy of the world when it comes to a harmonious multicultural society. The system isn't broken, there's no need for it to be repaired."

Senator Xenophon also confirmed: "We've got serious concerns about the bill in its current form."

Senator Griff sat on a Senate inquiry on the proposed citizenship changes and wrote a report opposing most elements of the package, recommending that the bill not proceed.

He told Fairfax Media the NXT opposed higher-level English language testing, arguing the current citizenship test sufficiently tests a functional level of English by proxy.

The party also opposed retrospective changes that would require permanent residents to wait four years before applying for citizenship. "It's horrible," Senator Griff said. "You don't backdate everything."

In addition, the NXT objected to Mr Dutton's bid for the power to overturn decisions of the Administrative Appeals Tribunal on citizenship matters, believing it would deny due process.

The minor party was also against capping the number of times a prospective citizen could sit the test and contended any "values test" should be decided by the Parliament, not Mr Dutton.

Senator Griff claimed the package was an attempt to "chop the migration numbers in half without actually making an announcement that you're going to cut it".

Asked if there was any room for negotiation, he said: "I don't think there's any room if this is a complete package."

A spokesman for Mr Dutton said the government was discussing the bill with crossbenchers "as is normally the case". Labor and the Greens have not budged from their stated positions of opposing the bill outright.

The surprise position from the NXT, whose votes are essential for the government to pass any bill opposed by Labor and the Greens, will force the Turnbull government to dump the proposal or go back to the drawing board.

Before the Senate inquiry, Senator Xenophon indicated his "broad support" for the measures announced by the government but did express some concerns about English language testing.

It is understood Liberal Party senators have also expressed reservations about some aspects of Mr Dutton's bill in their report, which was due to be published late on Tuesday.

Committee chairman Ian Macdonald, an LNP senator from Queensland, last week said he had concerns about the retrospective aspects of the four-year waiting period, among other issues.

The Department of Immigration and Border Protection confirmed at a public hearing that anyone who applied for citizenship after the policy was announced on April 20 would be captured by the new rules.

"The government were quite clear that they wanted it from date of announcement," the department's first assistant secretary, David Wilden, said.

Senator Macdonald lamented that "unfortunately, government by media release ... is nowadays just a fact of life". "I personally think that there should be some ministerial discretion ... in the transitional period," he said.

Labor and the Law Council of Australia welcomed the NXT announcement, with shadow citizenship spokesman Tony Burke calling on Mr Dutton to abandon the bill entirely.

"This legislation was never about national security, it was never about integration," he said. "These proposed changes are a direct attack on Australia as a modern multicultural country."

Law Council of Australia president Fiona McLeod said the bill contained an "unjustified" attack on the independent judiciary, and the NXT's shift in position showed the strength of the Senate's review process.