At the moment, the award goes to about 3,000 people every year.
But once the president's changes are introduced, ministers who are responsible for selecting potential candidates will only be able to put forward a total of 600 names.
And these must then be approved by the Legion of Honor council and the French president himself.
The move is all part of President Emmanuel Macron's mission to clean up politics.
As well as reducing the number of people who receive the award, which was introduced in 1802 by Napoleon Bonaparte, Macron has said he plans to prioritise merit over other distinctions, Le Figaro reported.
"The president of the Republic is insisting on worthwhile recipients and expects files based exclusively on merit, showing lasting service in the interest of the public," said a spokesperson for the president, according to BFM TV.
Bob Dylan, Clint Eastwood and Lance Armstrong are among the controversial recipients of France's top award. All photos: AFP
There will be a 50 percent cut in civilian honours from 2018-20, a ten percent drop in military awards and 25 percent fewer gongs for foreigners, government spokesman Christophe Castaner said.
The move marks the first time a French president has aimed to lower the number of people who receive the award to such an extent.
The new rules will also eliminate automatic promotions which means that the number of ambassadors, former ministers and the military, who represent 40 percent of those decorated, receiving the award will be severely impacted.
Another innovation is that citizens will be able to suggest one person to receive the award by providing a file including the signatures of 50 citizens of voting age.
This is an attempt to move with the times, according to the president's office.
The aim of the overhaul is "to recover the initial values" of the Legion d'Honneur and return it to its past "grandeur", said Castaner.
Efforts will be made to select award-winners who better reflect modern France, he said, noting that "white men aged over 60" currently account for too many of the recipients.
The changes won't come as too much of a surprise after Macron selected just 101 people to receive the honour on July 14th.
This compares to the 528 people selected to receive the honour by former French president Francois Hollande on July 14th 2012.
Among those Macron has honoured so far are former minister Monique Pelletier, resistance fighter Pierre Morel and screenwriter Jean-Claude Carrière.
Macron's changes to the system around France's highest award are set to be presented to the Council of Ministers on Thursday and are will take effect from January 1st 2018.
The award has faced its share of controversies over the years, with recipients including US singer Bob Dylan, US actor Clint Eastwood and disgraced cyclist Lance Armstrong turning heads.
Most recently Macron announced that France will strip disgraced Hollywood movie mogul Harvey Weinstein of the prestigious Legion d'Honneur.