A Federal Court judge found the Administrative Appeals Tribunal had legally erred in its decision to find Comcare liable for Shiree Power's adjustment disorder.

Justice Anna Katzmann sent the matter back before the tribunal to be reconsidered.

Ms Power suffered a lumbar sprain making a bed, and then reinjured herself cleaning a bathroom, when she worked as a casual house attendant at the prime minister's official Canberra residence in 2010.

Comcare accepted liability and granted her workers' compensation for the back injury, but rejected her claim for permanent impairment and non-economic loss.

In 2013, the insurer decided she no longer suffered from the effects of the injury in question and cut her payments.

In 2014, Ms Power was diagnosed with an adjustment disorder, featuring anxiety and depressed mood, as a result of her lower-back injury.

But Comcare again denied liability as it had not been satisfied the back injury significantly contributed to the psychological condition.

Ms Power appealed to the AAT, which found she had degenerative changes to discs in her spine before the injury, which had been asymptomatic, and the injury aggravated that spinal degeneration.

The tribunal also found Comcare liable for the adjustment disorder.

But Comcare appealed that decision to the Federal Court on four grounds, including that the tribunal failed to apply the correct standard of proof and had misconstrued the expression "to a significant degree" under the Safety, Rehabilitation and Compensation Act.

Justice Katzmann, in a decision published on Tuesday, allowed the appeal in part.

The judge threw out three of the grounds Comcare had argued.

But Justice Katzmann set aside the tribunal's orders that Comcare had been liable to pay Ms Power compensation for the cost of medical treatment for her adjustment disorder.

"The tribunal's finding that the pain Ms Power experienced from the compensable injury contributed to a significant degree to her developing an adjustment disorder with mixed features of anxiety and depressed mood is infected by legal error," Justice Katzmann wrote.

The judge said the law required a strong connection between the employment and contraction or aggravation of a disease.

"The tribunal did not recognise this, despite its reference to the definition.

"There is nothing in the tribunal's reasons to indicate that it carried out the kind of evaluative exercise required by the statute.

"I am not satisfied that [a medical expert's] opinion and the tribunal's erroneous construction of [the law] did not influence its findings on the question of whether Ms Power's employment with the Commonwealth significantly contributed to her adjustment disorder and its ultimate conclusion that Comcare was liable to pay compensation in respect of it."

Justice Katzmann ordered the matter be remitted to the AAT for hearing on questions of whether Ms Power's adjustment disorder had been significantly contributed to by her employment with the Commonwealth, and, if so, whether Comcare was liable to pay compensation for the ailment.

The judge also proposed to order Ms Power pay half of Comcare's costs as it had only partially succeeded in its appeal.

But she reserved the decision so the parties could make submissions on the proposal.