Hagel said the Pentagon's top lawyers would prepare legislation for Congress that would strip commanders' power to toss out convictions, "except for certain minor offenses that would not ordinarily warrant trial by court-martial."
Convicted defendants still would be able to appeal their cases.
But in a move berated by advocacy groups for military sexual-assault victims, Hagel also said he would recommend commanders retain the power to alter courts-martial sentences, provided the "convening authority," or the commander with the final court-martial say, explained in writing why he or she reduced the sentence or changed the verdict in a minor case.
Hagel's proposed changes to the Uniform Code of Military Justice, the foundation of U.S. military law, "have the full support of the joint chiefs of staff and the service secretaries," Hagel said in a statement.
The secretary, who received two Purple Heart decorations for wounds while an infantry squad leader in the Vietnam War, said the crime of sexual assault was "damaging this institution," with thousands of military men and women seeing their lives and careers turned upside-down by sexual assault.
"And that is unacceptable," he said. "The current situation should offend every single service member and civilian who, like me, is proud of their association with the United States military.
"These changes, if enacted by Congress, would help ensure that our military justice system works fairly, ensures due process, and is accountable," Hagel said. "These changes would increase the confidence of service members and the public that the military justice system will do justice in every case."
Hagel said he was reviewing other options to strengthen the department's sexual-assault prevention and response efforts, and would speak more about this soon.
His announcement followed widespread outrage, including in Congress, over the overturning of the conviction of a U.S. Air Force officer found guilty of aggravated sexual assault in November.
Lt. Col. James Wilkerson, an F-16 fighter pilot at NATO's Aviano Air Base in northeastern Italy, was found guilty of sexually assaulting a woman at his home near the base and was sentenced to a year in prison.
But his conviction by a jury of four colonels and a lieutenant colonel was overturned in February by Lt. Gen. Craig Franklin, commander of the 3rd Air Force, who convened Wilkerson's court-martial and used his power under the UCMJ's Article 60 to throw out the conviction.
Wilkerson, who had been accused of groping a sleeping house guest in March 2012, was exonerated, released from a South Carolina brig, reinstated and assigned to a staff job at an Arizona Air Force base.
Nancy Parrish, president of the Protect Our Defenders advocacy group for military sex-assault victims, said Hagel's proposal, while a step forward, fell short of the measures needed to combat an "epidemic of sexual assault in the military."
"The military has always contended that incidences like Aviano are extremely rare and we have never disputed that," Parrish said in a statement.
"But we have always contended that the more insidious problem is that convening authorities can unilaterally lessen sentences, and [Monday's] announcement does not change this," she said.