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It means that anyone caught with one in a variety of situations will be prosecuted and tried by a sheriff and jury.
These situations include possessing a knife on licensed premises, when gang involvement is suspected, at a ``hot spot'' for violence, on public transport, or at a bus or train station.
Mr Mulholland said these measures will allow greater sentencing power for the sheriff and increases the maximum prison term from one to four years.
The aim of the policy is to act as a deterrent and to reduce reoffending.
The Lord Advocate said: "Carrying a knife in public is completely unacceptable and a serious offence and those in our society who choose to ignore this will face the full rigour of the law.
I send out a further warning to those who still carry knives or use knives to harm others - you will, if caught, be prosecuted and could be imprisoned for up to four years.''
Justice Secretary Kenny MacAskill said the Scottish Government supports prosecutors and the courts in using the full force of the law to punish anyone found guilty of this offence.
He added: "The courts already have the power to impose a four-year sentence for possession of a knife, but with more cases set to be heard by a sheriff and a jury rather than through the summary courts, this new strengthened prosecution policy will mean more offenders now face the toughest of sentences.''
The Crown Office and Procurator Fiscal Service will implement the strengthened policy from today.
In addition, there will be a presumption in favour of prosecution on indictment where the accused has previously been convicted of a relevant offence.
The move was also supported by Chief Inspector Graham Goulden, who leads the anti-violence campaign on behalf of the violence reduction unit.
He said: "Sadly, although the number of people caught carrying an offensive weapon in Scotland is down to its lowest level in a decade - down 30% since 2006-07 - there are some who still persist in knife carrying.
The Lord Advocate's announcement sends out a clear warning to these carrying knives that their behaviour will not be tolerated and will be punished.''
Scottish Labour's justice spokesman James Kelly said: "This is a step in the right direction and is a victory for the knife crime campaigners who have campaigned tirelessly for action to end the culture that is claiming the lives of too many innocent Scots.
It has taken the SNP government over four years to listen to powerful voices like John Muir who have championed the cause of knife crime victims.
Labour will continue to speak up for the victims of knife crime and press for the tough action the public so desperately want. The message needs to be sent loud and clear that it is never, ever acceptable to carry a knife on the streets of Scotland.''