In a press statement released on Monday, the government said it would submit a bill containing the new "democracy clause" to the Council on Legislation on Thursday, having reached agreement with the centre-right Alliance bloc.
The Council on Legislation examines proposals for new laws to make sure they are in keeping with Sweden's legal system.
The government promised two years ago to limit arms sales to countries with "serious deficits in their democratic status".
Isabella Lövin, spokesperson for the Green Party expressed her happiness that the clause had made it to this stage.
"I am extremely proud that Sweden is the first country to bring this in," she said.
But Sofie Damm, foreign policy spokeswoman for the Christian Democrats, said she was disappointed that the law did not go as far as to totally ban arms sales to dictatorships.
"Under Christian Democrat principles it wouldn't be possible to export to dictatorships at all," she said. "We would have like to see a total ban."
Hans Wallmark, defence spokesperson for the centre-right Moderate Party, admitted that the proposal was a "compromise" designed not to overly weaken the Swedish defence industry.
"Now we have a regulatory framework which will hopefully become legislation, and that's a clear signal to the industry that arms exports will still be possible," he said.
"The most important thing for the industry is to know what will apply in the future."
The proposal has faced opposition from some Swedish defence companies, who fear it will damage sales.
Håkan Buskhe, president of Saab, has warned that reducing opportunities for Swedish defence could force his company to move some research and development activities overseas, and also risked increasing the cost of planes and weapons for the Swedish Armed Forces.
Sweden's arms industry was worth $1.21 bn in 2016.
In recent years the country has sold weapons or planes to autocratic countries including Saudi Arabia, Oman and the United Arab Emirates.