Prime Minister Keir Starmer called tackling the problem "a national emergency", writing in the Guardian newspaper that it "requires an immediate and uncompromising response".
Victims of abusive images would have to report them only once for tech companies to remove them from multiple online platforms under the new measures, which could come into force as early as this summer.
Failure to act would result in firms facing a fine of up to 10 percent of their global revenue or having their services blocked in the UK, the government said in a statement.
The proposals come after Elon Musk's Grok chatbot drew international criticism for letting users create and share sexualised deepfakes of women and children using simple text prompts.
"The online world is the frontline of the 21st century battle against violence against women and girls," Starmer said in a the government's statement.
"That's why my government is taking urgent action: against chatbots and 'nudification' tools," he said.
The proposals will be introduced via an amendment to a criminal bill giving police greater powers to enforce measures.
The government earlier this week extended its online safety laws to include AI chatbots, making providers responsible for preventing the generation of illegal or harmful content by AI.
Britain's media regulator Ofcom is considering plans to treat illegal sexualised images with the same severity as child sexual abuse and terrorism content.
It will announce its final decision on these proposals in May.
Starmer's Labour government is ramping up efforts to protect children online, having launched a consultation on a social media ban for those under the age of 16.
In January 2025, Starmer pledged to ease red tape to attract billions of pounds of AI investment and help Britain become an "AI superpower".
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