Borrowers should no longer be allowed to take on debt amounting to more than five times their income, and also face tougher amortisation requirements, it said.

The new rules will still allow banks to exercise flexibility and judgement for up to 10 percent of lending volumes however, thus falling short of the clamp-down proposed by the country's banking regulator in September.

In Oslo, the flexibility will be limited to 8 percent of volumes, and anyone buying a second home must have at least 40 percent equity financing, the ministry added.

Norwegian housing prices have risen sharply in recent years, particularly in and around the capital, as demand for homes has outstripped supply.

(Reporting by Terje Solsvik, editing by Ole Petter Skonnord)