The proposals will be put to a referendum on July 1, the king said. They devolve many of the king`s powers to the prime minister and parliament.
The proposals come in the wake of nationwide pro-reform demonstrations that started in February, inspired by other popular uprisings sweeping the Arab world.
The 47-year-old monarch, who in 1999 took over the Arab world`s longest-serving dynasty, holds virtually all power in the Muslim north African country, and he is also its top religious authority as the Commander of the Faithful.
In future the head of government should come "from the ranks of the political party which comes out top in parliamentary elections," the king said in a keenly-awaited televised address.
It would mean a "government emerging through direct universal suffrage," he said.
The prime minister, now to be called the "president of the government" will have the "power to dissolve parliament," which was hitherto the monarch`s prerogative, the king said.
King Mohammed VI also pledged an independent judiciary and said the proposals would "consolidate the pillars of a constitutional monarchy."
The king has until now headed the council that has appointed the country`s judges.
Under the proposals, drawn up by a reform panel appointed by Mohammed VI in March, the prime minister will be able to appoint government officials, including in the public administration and state enterprises, taking over an authority previously held only by the king.
The Prime Minister will also be able to debate general state policy with a government council at weekly meetings to be held in the absence of the king, according to the draft proposals seen earlier by a news agency.
Under the current constitution, only the cabinet chaired by the monarch can decide on state policy.
Among the new competencies of the parliament would be declaring a general amnesty, also currently only the king`s domain.
The reference to the king in the constitution as "sacred" would be replaced by the expression: "The integrity of the person of the king should not be violated."
This is an important change because the word "sacred" has a strong religious connotation, especially in Arabic, analyst Mohamed Darif said.
"The new formula does not try to put a religious dimension to the person of the king but rather highlights political responsibilities," he said.
Mohammed VI would still hold the title of Commander of the Faithful, which makes him the country`s only religious authority, and remain the head of the military forces and nominate ambassadors and diplomats.
The proposals also provide for indigenous Berber (amazigh) to be considered an official language alongside Arabic in the preamble of the new draft constitution.
A large section of Morocco`s 32 million people use one of the three dialects of the language.
The reforms are expected to transform the kingdom`s political system into a constitutional monarchy, as demanded by the February 20 Movement named after the date of its first nationwide pro-reform protests.
The youth-led group has brought thousands of people onto the streets in unprecedented calls for change, on the back of uprisings that toppled the autocratic rulers of Tunisia and Egypt in January and February.