Ed Miliband is to say the "big five" banks must give up "significant" numbers of branches in an effort to make the industry more competitive.
The Labour leader will argue financial services have been "an incredibly poor servant of the real economy", citing a drop in lending to businesses.
In a speech, he will promise to create at least two "challenger" banks.
But the Conservatives said Labour's policies were "all over the place" and the party had "no credible plan".
The "big five" banks - HSBC, Barclays, RBS, Santander and Lloyds - account for the majority of bank customers and lending.
In his speech at the University of London, Mr Miliband will say a Labour government would instruct the Competition and Markets Authority to report within six months of the May 2015 general election what the limit on a bank's market share should be and the timetable for any sell-off of branches, which should be completed by 2020.
'Reckoning'He will say: "Of course, financial services are an important industry in itself. But for an industry that calls itself a 'service', it has been an incredibly poor servant of the real economy, not just since 2010 - or 2008 - but for decades in this country.
"We need a reckoning with our banking system, not for retribution, but for reform."
Mr Miliband will say: "If we carry on as we are, we will end up stuck with the same old banks dominating our high street: the old economy.
End Quote Vince Cable Business secretaryExactly what kind of bank is he trying to create?"
"In America, by law, they have a test so that no bank can get too big and dominate the market. We will follow the same principle for Britain and establish for the first time a threshold for the market share any one bank can have of personal accounts and small-business lending."
Labour would also introduce a new National Credit Register for small and medium-sized businesses, to increase competition and improve lending to small business by allowing all banks access to comprehensive data on their credit histories.
Bank of England Governor Mark Carney said earlier this week that he supported the view that a cap on banks' market share "would not result in substantial improvement to competition".
'Labour's recession'He told the Commons Treasury Committee: "Just breaking up an institution doesn't necessarily create or enable a more intensive competitive structure."
But Mr Miliband will say: "This is not about whether we should have new banks... but about how...
Extracts of the speech to be given by the Labour leader say: "We have to get to the root of the decades-long problem in British banking - too much power concentrated in too few hands.
"Britain has one of the most concentrated banking systems in the world, with just four banks controlling 85% of small business lending."
Ed Miliband will pledge that big banks cannot get any bigger.
Bankers have said to me this would lead to what they call a perverse outcome, that as they approached the maximum size they would dump customers they deemed low quality or loss-making.
It is unclear whether these customers would be able to bank elsewhere.
"It is not about creating new banks that control some tiny proportion of the market, but new banks that have a substantial proportion and can compete properly with existing banks.
"And we are not asking whether existing banks might have to divest themselves of a significant number of branches. We are asking how we make that happen."
Shadow business secretary Chuka Umunna acknowledged that Labour's plans could cause share prices of banks - including RBS and Lloyds, which are part government owned - to fall.
"I'm not denying in the short term that you may see a hit on the share price of these banks, it's probably happening as we speak now," he said on BBC Radio 4's Today.
"But the reason we're doing this is so that we can grow our small businesses, which not only create in and of themselves more middle income jobs, so we actually get people earning more, but also they're very important feeders in the supply chain for our larger businesses."
For the Conservatives, Treasury minister Sajid Javid said people in the UK had been "made poorer by the worst recession in a century - a recession caused by the Labour government that Ed Miliband was at the heart of. So Ed Miliband is complaining that his own mess isn't being cleaned up fast enough."
He added that the Labour leader was "all over the place" and had "no credible economic plan".
But Business Secretary Vince Cable said he agreed with Mr Miliband, adding: "We do need more competition. We've been very badly served in the past."
Speaking on BBC Two's Newsnight he said: "Many of the things he's calling for have actually happened.
"What his proposals don't clearly indicate is exactly what kind of bank is he trying to create?"
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