Chief Ombudsman Peter Boshier said he saw the new role as an extension of his existing work in overseeing all state agencies.
Under the new proposals, he would be able to quickly respond to complaints and identify and resolve emerging issues, he said.
"I can launch an investigation at any stage. Oranga Tamariki will need to tell me about any serious issue or if it receives any significant complaints."
It would also allow him to look at wider trends.
"A cluster of complaints in an institution or about a particular event may suggest broader issues with systems and processes."
The changes come ahead of a new standards for children in care which come into force in July.
"Given the scale and scope of Oranga Tamariki's new standards, the monitoring function that will be required will be a steep shift in size and complexity and will be a significant change for the sector," Sepuloni said.
The Ministry of Social Development would set up a new monitoring function for Oranga Tamariki, which would then be handed over to the Office of the Children's Commissioner.
"The Office for the Children's Commissioner has done an exemplary job in its current capacity particularly in its systemic advocacy for all New Zealand's children," she said.
"I'm keen to see us continue to capitalise on this strength."
As of June last year, there were 6350 children and young people in state care in New Zealand.
A new reporting system revealed last month that 220 of these children had been harmed over a six-month period - a finding which Oranga Tamariki head Grainne Moss said was "distressing".