Ed Miliband is promising a "reckoning" with the banks if Labour wins power, with the big five high street giants forced to give up "significant" numbers of branches to make way for new competitors.
In a keynote speech on the economy, Mr Miliband will say that the financial services industry has been "an incredibly poor servant of the real economy" and will blame lack of competition in the sector for mis-selling scandals and a £56 billion drop in lending to business since 2010.
He is seeking to put further flesh on the bones of Labour's economic policy agenda for the next Parliament.
But attempts to promote the Opposition's proposed solutions to a "cost of living crisis" risk being overshadowed by George Osborne's backing of a significant rise in the national minimum wage.
In what was seen as a calculated political move to outflank Labour, the Chancellor chose the eve of Mr Miliband's address to throw his weight behind restoring the threshold to its pre-recession value - a move Labour have called for.
Mr Miliband's banking shake-up blueprint also faced criticism from business leaders and consumer groups who said action was already under way to improve competition.
The Labour leader will promise to introduce a legal maximum threshold for any bank's share of the market in personal accounts and small business lending, with powers to force the sale of branches and block mergers and acquisitions to prevent it being breached.
A Labour government would instruct the Competition and Markets Authority to report within six months of the May 2015 general election on the level at which the threshold should be set and the timetable for the sell-off of branches, which should be completed by 2020.
Changes would be designed to improve the price and quality of lending to small businesses and services to individual customers, and to create at least two new "challenger" banks with significant shares of the market, said Labour.
In his speech at the University of London, Mr Miliband will say: "We need a reckoning with our banking system, not for retribution, but for reform."
"If we carry on as we are, we will end up stuck with the same old banks dominating our high street: the old economy.
"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."
Mr Miliband will reject Tory claims - made by David Cameron at Prime Minister's Questions this week - that falling inflation has taken the steam out of his cost-of-living argument.
"This government thinks it is all going to be OK because this year the forecasts say that average wages will eventually overtake prices," Mr Miliband will say.
"Let's hope that happens. But I really warn this government - if they think a few months of better statistics will solve this crisis, they are just demonstrating again that they have absolutely no idea about the scale of the problem or the solutions required."
Critics of the Labour plan are likely to point to comments from Bank of England governor Mark Carney earlier this week, when he supported the view that a cap on banks' market share "would not result in substantial improvement to competition".
Mr Carney 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 insist that "a fter decades of banking becoming more and more concentrated, Labour will turn the tide".
CBI chief policy director Katja Hall said it was "not for politicians to dictate market structures - they must allow competition authorities to do their job".
"There are already new entrants making an impact on the market without the need for artificially carving up existing bank branches," she said.
Richard Lloyd, executive director of consumer group Which? said that while more competition was desperately needed, enforced branch sales was not a " silver bullet".
"After all, someone has to want to buy them," he said.
"The real priority for the regulators is to use their new powers to make it easier for new challenger banks to give people a genuine choice, make sure the payments system is fit for purpose and make banks release data to help consumers find the right bank for them."
Business Secretary Vince Cable said he agreed with Mr Miliband's desire for increased competition but insisted that "many of the things he is calling for have actually happened".
"Two new banks have been created out of RBS and Lloyds - Williams and Glyn's and TSB, new banks that have been carved out and are already up and running," he told BBC2's Newsnight.
"What his proposals don't clearly indicate is exactly what kind of bank he is trying to create.
"There is lots of competition for mortgages, there is not a problem there. The real problem is for small businesses."
Financial Secretary to the Treasury Sajid Javid said: " Ed Miliband is complaining that his own mess isn't being cleaned up fast enough."