A draft bill - which would see anyone profiting off surrogacy given a maximum 10-year prison sentence - passed its first reading in the country's military-stacked parliament on Thursday, legislator Wallop Tungkananurak said.
"We want to put an end to this idea in foreigners' minds that Thailand is a baby factory," he said.
"The bill was adopted with overwhelming support."
Commercial surrogacy was technically banned by Thailand's Medical Council, but until recently even top fertility clinics were believed to offer the service.
The murky industry came under intense scrutiny this summer after a series of surrogacy scandals broke involving foreigners.
In August, a Thai mother who carried twin babies for an Australian couple accused them of abandoning a baby boy with Down's syndrome while taking his healthy sister.
The couple have denied deliberately leaving the boy, called Gammy, with the surrogate mother - who was paid around $US15,000 ($A16,200) to carry the twins.
In a separate case, police believe a Japanese man fathered at least 15 babies with surrogate mothers for unknown motives.
A gay Australian couple were also stopped from leaving Thailand with a baby because they had incomplete documents.
Thailand's military junta, which took over in a May coup, vowed to crack down on the industry.
Dozens, possibly hundreds, of foreign couples are thought to have been left in limbo after entering into surrogacy arrangements through clinics in the kingdom.
