It is a big shift (in policy), but this is a new government with a more liberal approach," said Jaap Oosterveer, a spokesman for the Dutch ministry of public safety and justice.
In a letter sent to the Dutch parliament on Saturday, Fredrik Teeven, state secretary of security and justice, wrote that hundreds of thousands of Dutch defied a ban by gambling online, and so a change in the law would allow more oversight.
Several European countries such as France, Italy, Austria, Britain and Sweden already regulate online gambling, and the Netherlands should also be offering licenses for online games such as poker, bingo and sports betting, Teeven wrote.
A number of online gambling companies have launched legal challenges against several European countries in an effort to break into lucrative markets but have found the going tough.
Ladbrokes, Britain's biggest bookmaker, and Betfair, the world's largest online gaming exchange, both challenged Dutch gambling policy unsuccessfully last year at the European Union Court of Justice.
In his letter, Teeven wrote that consumers should have an appropriate and attractive range of gambling options but that it was very important that there are safeguards against risks such as gambling addiction and fraud.
The licensing system for lotteries in the Netherlands should become more transparent, while competition in the gaming industry, which is dominated by state monopoly casino operator Holland Casino, should also be explored, Teeven added.
The Dutch government expects the auctioning of Internet gambling and lottery licenses to generate at least 10 million euros (US$14.1 million) per year for its coffers starting from 2012, Teeven wrote.