Local authorities in England could ban rooms smaller than 6.5 sq m from being let as bedrooms in licence applications for multiple occupancy houses.
The Department for Communities and Local Government is setting out the plans in a discussion paper.
Housing minister Brandon Lewis said some landlords provided "simply unacceptable" living accommodation.
The paper, announced by Mr Lewis, sets out plans to improve standards of shared homes by extending mandatory licensing to smaller and medium-sized properties.
Any landlord who fails to obtain a licence would be liable to pay a potentially unlimited fine.
Mr Lewis said: "It is simply unacceptable that people are living in cramped, unsafe accommodation provided by landlords who are more interested in a quick profit than the safety or welfare of their tenants.
"The actions of these rogue landlords are helping fuel illegal working, benefit fraud, and illegal immigration by creating a shadow housing market that carries dangers to people's health as well as communities."
Local authorities would be able to apply the rules to more shared homes than  they can currently, including those that are one or two storeys high
The paper also aims to see the rules applied to poorly converted blocks of flats, located above and below shops, which are often exempt from existing rules.
A national minimum bedroom size could be introduced under plans to combat overcrowding and rogue landlords.