If the draft bill gets the go-ahead, those people wanting to become Spanish citizens will have to prove they have a "sufficient" level of Castilian and that they have integrated into Spanish society.
The draft act also would also pave the way for the Spanish government to strip people of their Spanish citizenship for reasons of national security or public order.
New citizens of Spain could also lose their citizenship if they voluntarily join "the army of another country or take up political office in a foreign state", reported news agency Europa Press on Thursday.
Under the present regime, this is only the case if the Spanish government has expressly prohibited these acts.
New citizens of Spain who fraudulently use the nationality they have renounced to become Spanish could also see their Spanish citizenship revoked.
Spain's civil code only allows people from Hispanic countries, Portugal, the Philippines, Andorra and Equatorial Guinea to keep their citizenship.
Citizens of all other countries have to give up their original passport when they are granted Spanish nationality.
Apart from the changes described above, the new draft bill of the Reforma Integral de los Registros (Comprehensive Reform of Registration) also outlines key changes to the citizenship application process.
If the law gets the go-ahead, candidates will have to front up to a notary to have their documents certified.
That notary would then be required to certify that the candidate had passed the citizenship exam.
Notaries would also have to confirm that the candidate had given the obligatory oath declaring obedience to the king and the constitution.
The draft law states that these changes to the application process are designed to streamline a process which has seen long delays.
In October 2012, El Pais newspaper said that 430,000 applications for Spanish citizenship remained outstanding, and that this number was growing by 10,000 a month.
Peak immigration group the Madrid Immigrants Platform (PIM) responded on Thursday by telling Europa Press that the draft law was "a new attempt to restrict the rights of foreigners".
PIM said proposed changes that could see people stripped of their citizenship if they posed a threat to national security or public disorder were a way of frightening people into not participating in politics or social movements.
"They want to create a second legal category of Spaniards — those with full civil rights and those who are limited in exercising those rights because they run the risk that the government will look badly on their action and withdraw their nationality at their own discretion," stated PIM.
PIM also responded negatively to proposed changes that would mean would-be citizens had to obtain certification from a notary to show that they had passed the official citizenship exam.
"This change is something that will 'benefit' notaries at the expense of foreigners," said the group.
"We call on society at large and the relevant authorities to stop this new attempt to limit the rights of foreigners.
"Prime Minister Rajoy and (Justice Minister) Alberto Ruiz-Gallardón need to know that we will continue to denounce these abuses," the group said in a statement.
Many citizens of European Union countries living in Spain would not be directly affected by the proposed changes as these people can live in Spain on their own passports.
The lion's share of the Spanish residents awaiting news on their citizenship applications are from Morocco, Ecuador, Colombia and Peru.