Functions such as drafting key regulations and prudential oversight will be transferred to the PBOC, according to the document.
The merger of the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) is aimed at resolving existing regulatory problems such as unclear responsibilities and cross-regulation, according to the document.
The new regulator will be capable of "holding the bottom line to prevent systematic financial risk", the parliament document says.
On Sunday, the parliament voted to amend the constitution to remove presidential term limits, opening the way for President Xi Jinping to rule indefinitely.
China is in a middle of battle against financial risk, as credit in the world's second largest economy has exploded since the financial crisis a decade ago.
The long-awaited measures to tighten the control over the banking and insurance sector of the country, which has a total value of 42 trillion United States dollars, comes amid the authorities' attempts to curb risky credit practices and reduce high corporate indebtedness.
Kartik Aaryan - Compared with Ranveer, Ranbir and Varun, I Am Happy
This is also proof that as long as you bring good content on the table, people will appreciate your work and enjoy it. SKTKS is a film that negates the belief that only a film with huge stars can create big numbers.
There will be 26 ministries and commissions of the State Council after the reshuffle, the report said.
Financial regulators have cracked down on major companies - even taking over Anbang Insurance this year - to get a handle on building risk and unwieldy debt that some analysts worry pose a serious threat to China's financial stability.
The draft also includes a new immigration bureau and changes to the tax system.
The government will create seven new ministries: natural resources; ecological environment; emergency management; agriculture and rural affairs; culture and tourism; veterans affairs; and the National Health Commission.
China has also proposed forming a national markets supervision management bureau, which will take on broad responsibilities including antitrust and product safety.
There will be new administrations under the state council or the central cabinet, such as an worldwide development cooperation agency and a state immigration administration.