The Coalition is reportedly split over a plan to punish supermarket price gouging by breaking up the big retailers.

Opposition Leader Peter Dutton, Nationals leader David Littleproud and treasury spokesman Angus Taylor unveiled a plan on Tuesday to threaten major retailers such as Coles, Woolworths and Bunnings with divestiture to end anti-competitive behaviour.

But the plan, which would become law if the Coalition wins the next election, has apparently sparked fierce internal debate, with Liberal MPs reporting a heated partyroom debate on Tuesday.

The ABC reports that Alex Hawke, Maria Kovacic, Rowan Ramsey, Dave Sharma and Keith Wolahan all voiced concerns at the meeting.

One Liberal MP said the announcement “felt like an ambush”, while another said Dutton had capitulated to the Nationals “at the expense of Liberal values”.

Former Victorian Liberal premier Jeff Kennett also scoffed at the idea, telling the Australian Financial Review it was “madness” that demonised employers and would not bring down checkout prices.

The Business Council of Australia and the Australian Retailers Association have also voiced concerns.

Littleproud has described the idea as a “deterrent”, and brushed off the criticism on Wednesday.

“This is nonsense saying that it’s going to drive up grocery costs. We’re not increasing any regulatory burden on them. It’s still asking them to act within the existing Codes of Conduct and Section 46 of the Consumer Competition Act. All that we’re saying is, there’s greater penalties if you step outside that,” he told ABC TV.

Under the plan, the consumer watchdog would be able to use divestiture powers as a last resort to address anti-competitive behaviour by major chains.

Dutton said the plan would mean customers would be better protected at the checkout while also bringing Australia into line with similar powers legislated in the US and Britain.

He said the divestiture powers did not represent an abandonment of the Liberals’ free-market principles but would help small businesses and farmers get a fairer deal with major chains.

“The situation in Australia at the moment is that there’s a massive concentration of market share within the two major companies, within Coles and Woolies,” Dutton said in Canberra on Tuesday.

“There are many complaints, and validly made by consumers as well, who are worried about what it means when they go to the checkout with ever-increasing prices.”

He said there would be safeguards to ensure jobs would not be lost if divestiture moves went ahead.

For the powers to be applied, a court would have to find that divestment would result in a substantial improvement in competition and be in the public interest.

The Albanese government has also rebuked the opposition’s idea, saying it would do little to reduce the cost of groceries.

The government has ruled out divestiture powers as a way to rein in the supermarket duopoly, with Prime Minister Anthony Albanese branding it a “Soviet-style solution”.

The government will instead impose a mandatory code of conduct for how supermarkets treat suppliers.

Under the code, fines of up to $10 million would apply for breaches.

Treasurer Jim Chalmers said the opposition proposal was a “half-baked idea”, referring to a review of the grocery sector that found it would not alleviate prices.

“When it looked at this matter, it said that the risk was that it could actually make things worse, not better,” he told Parliament.

“It found that forced divestiture resulted in a supermarket selling some of its stores to another large incumbent, or in forced closure of stores.

“We might see less competition, not more competition.”

The announcement comes after a Greens-led inquiry into supermarket pricing recommended breaking up the duopoly of Coles and Woolworths to prevent them abusing their market share.

The Greens have welcomed the Coalition plan.

“[The government needs] to read the writing on the wall, understand that people are hurting at the supermarket checkout, and Labor needs to shift its position,” leader Adam Bandt said.

Littleproud said the major supermarkets had been “cleaning up” at the expense of farmers and consumers, as evidenced by beef and sheep prices dropping by 60 to 70 per cent in June, while checkout prices shrank only 8 per cent.

“This is a commodity that underpins all life,” he said.

A separate review of the Food and Grocery Code by former Labor minister Craig Emerson advised against breaking up the supermarkets, warning it would lead to less competition and job losses.

Assistant Competition Minister Andrew Leigh said attempts to break up the supermarkets did not stack up.

“This is a power which is rarely used in other countries. We are focused on getting measures which will benefit Australian households,” he said.

“We’ve got a policy which, like nuclear, is friendless among experts, which has been put together by hapless ministers looking for a headline rather than for serious policy reforms.”

-with AAP