Speaking to Perth's 6PR radio station, the backbench MP from the Sydney seat of Hughes said that there were "elements of the Portuguese model that we should look at very closely here in Australia".
Portugal decriminalised the possession of all drugs for personal use 16 years ago in an ambitious policy that was complemented by the allocation of greater resources to expanding and improving programmes aimed not only at prevention but also treatment, harm reduction and social reintegration.
"So say for example it might be cocaine -- if you possess under what they classify as 10 days supply for an addict, instead of going to jail you are sent to a drug dissuasion commission," Kelly said.
"And if you are an addict you are put into a treatment, if you are a recreational user you are fined and you are given all the help to try and dissuade you from continuing to use drugs."
Writing for HuffPost Australia earlier this year Gino Vumbaca -- president and co-founder of Harm Reduction Australia -- highlighted that the harmful impacts of Australia's current drug laws have led to greater risks of HIV and other blood borne viruses, higher incarceration rates and a range of health and social problems.
"Contrary to the initial fears of some, the results [in Portugal] have been reduced drug use, reduced overdose fatalities, reduced incarceration and a range of other positive outcomes," he wrote.
Kelly said that despite having always thought that "we can't show any weakness" in regards to drugs, "we are simply not going to arrest ourselves out of this problem".
"I'm still not convinced a full decriminalisation is correct but I think we do need to put more resources into the rehabilitation sector to make sure that we can do everything we can to prevent people, to deter their will from taking drugs in the first place," he said.