The bill stipulates a jail term of between one and three years and a fine of up to $72,000 for those who commit or incite a hate crime.
The penalty increases to a jail term of up to seven years and a fine of at least $180,000 for repeat offenders.
Kuwait has witnessed heightened sectarian and tribal tensions this year, but there is no special anti-hatred legislation, with the courts using the existing penal code to deal with such offences.
In recent months, Kuwaiti courts sentenced Shiite and Sunni activists for comments on the Twitter microblog deemed offensive to the other branch of Islam.
The draft bill must be passed by parliament and approved by the government before going into effect.
Sectarian tensions have flared in Kuwait between the Sunni majority and Shiites, who form about a third of the native population of 1.17 million, reflecting rising regional tensions between the two Islamic sects.
