The agency will be led by industry representatives and have a key role in the allocation of a $A700 million training fund.

The federal government is providing $25 million over three years to establish the AWPA. That is in addition to the Skills Australia budget.

A key role of the agency will be to set priorities for, and to provide oversight of, the $700 million National Workforce Development Fund.

Those funds are being provided over five years to support businesses that want to up-skill and re-skill new and existing staff in priority industries and occupations.

The government expects that fund will help deliver training to 250,000 Australian workers.

Minister for Skills Chris Evans said the agency was an extension of Skills Australia and would improve long-term workforce planning and develop, address skills and labour shortages and contribute to improved industry and workplace productivity.

"Putting industry at the heart of the system means we ar not training people for training sake - we are training people for jobs," Evans said.

"This is a fundamental difference from the traditional supply side system where an individual selects the training package they want."