"With the new law, we want to change people's (smoking) habits and protect non-smokers," Health Minister Darko Milinovic said.
The bill, in line with standards of the European Union which Zagreb aspires to join by 2010, envisages a smoking ban in all education, health and social institutions as well as work places.
Smoking at bars would only be allowed on terraces, while restaurants would have the possibility of allocating a separate room for smokers. But no food or drinks would be allowed to be served in such areas.
The minister said tobacco kills some 10,000 every year while an additional 3,000 people die from passive smoking in Croatia, where 32 percent of the 4.4 million population are smokers.
The cost in Croatia of medical treatment for the consequences of smoking are estimated at some 422 million euros (589 million dollars) annually.
The bill, which envisages fines of up to 2,800 euros, is likely to be forwarded to parliament by the end of the month. Once adopted, it will enter into force within the next six months.
Under current laws, smoking is banned in health and education facilities, while in other public areas separate smoking areas have to be marked. But the rules are often ignored, notably in bars, restaurants and offices.
The new legislation has already sparked controversy in the country, whose economy heavily relies on the tourism industry.
The Balkans are home to Europe's most inveterate smokers, where 30 to 40 percent of all adults are gripped by the habit, a major cause of premature death, according to the World Health Organisation.