Officials at the Carmarthenshire venue have made the changes to their feature race on February 2 in a bid to make it more competitive and to avoid a clash with the Betfred Mobile Sports Contenders Hurdle at Sandown the same day.
Tim Long, Ffos Las general manager and clerk of the course, said: "We are proactively taking this initiative to ensure that the William Hill Welsh Champion Hurdle is as competitive as possible in the years to come.
"Making it a limited handicap and increasing the prize-money - up by 16 per cent next year compared to when it was last run in 2011 - will make the race more attractive to owners and trainers.
"There is no getting away from the fact that Sandown Park's Listed hurdle scheduled for the same day is very similar to our race, so the increase to two and a half miles makes ours a different type of contest.
"I would be very hopeful that we will get a very competitive entry for the 2013 renewal - and we are once again delighted that William Hill is sponsoring our principal race."
Oscar Whisky, owned by Ffos Las chairman Dai Walters, beat four rivals in 2011.
However, he is unlikely to bid for a repeat as his trainer Nicky Henderson said on Tuesday that the horse was likely to run in the Cleeve Hurdle at Cheltenham the week before.
Walters said Oscar Whisky would only run in the race if the Cleeve Hurdle was abandoned. "By changing it to a handicap William Hill are happy and the trip will hopefully attract a better field," said Walters.
"We would definitely look at the race for Oscar if the Cleeve was off."