The Albanese government has announced it will be launching an external review of the Fair Work Ombudsman's (FWO) operations.

The review comes after an extensive campaign by the Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) to abolish the body. 

The government says the review is in recognition of the FWO taking on new functions, particularly those of the now-abolished Australian Building and Construction Commission, which enforced workplace laws against the construction union. 

Builders are concerned that the review could divert resources away from enforcing coercion and industrial laws against the CFMEU and threaten the watchdog's independence. 

The government will also cut the FWO's operational budget by 2.5 per cent or $15.8 million from 2023-24 and redirect the money to other workplace programs. However, the watchdog's overall funding will increase, with staffing increasing from 901 to 938 in 2023-24. 

The government is recruiting a new Fair Work Ombudsman after incumbent Sandra Parker announced she would step down when her term expires this July.