Miliband has vowed the biggest shake-up in the way the Labour Party is run since it was founded in 1918 in an effort to halt declining membership.
The Labour leader wants to give the public a formal role in policy formation – and allow them to become “registered supporters” free of charge.
It has been interpreted by some as a move to dilute union influence.
But Mr Miliband says drastic action is needed to halt the slide in participation affecting all parties.
The aim of the “Refounding Labour” project, headed by shadow cabinet member Peter Hain, is to transform Labour into a more outward-looking organisation.
Mr Hain said: “It is imperative we use this period of Opposition to leapfrog the other parties by refounding our own, so that Labour emerges refreshed and reinvigorated.
“Fewer voters are wedded to one particular party these days.
In his bleak assessment of Labour’s future, Peter Hain warns that many local parties are moribund.
Activists feel disengaged and disillusioned, the membership is elderly, in some areas of the country the party “barely functions”.
The number of affiliated union members has fallen significantly and the party’s structures have hardly changed since the First World War.
Mr Hain suggests Labour should consider allowing registered supporters to join the party without becoming full members.
Individuals would be able to become a supporter – and have a say in leadership elections and policy – for just £1.
The move is in part designed to counter a long term collapse in membership.
But it is likely to be controversial, particularly among unions who may fear a diminution in their influence.
“Just as politics has become more global it has also become more local. So what matters more than ever is how Labour engages with people in their neighbourhoods on local issues.”
Party membership has been in decline across Europe for decades and the UK now has one of the lowest rates of membership among other established democracies with 1.5% saying they belonged to a party in 2001.
Labour Party members will hold consultation meetings in May, with rule changes to be considered first by the party’s National Executive and then its annual conference in September.
The Lib Dems and Conservatives have also been experimenting with ways to boost membership and reach out to non-aligned voters, including open primaries to select candidates and cut-price membership schemes.
Mr Miliband became Labour leader in September 2010, four months after the party recorded its worst General Election performance since 1983.
The document says the 400,000 votes cast in the leadership election was double the number who voted in the most recent Conservative leadership election, but also notes that three million people could have taken part.
It says “the challenge now is to find ways of involving still more of our supporters in future elections”, including the possibility of allowing registered supporters to vote.