Human Services Minister Marise Payne has ordered an investigation after killer Martin Toki told an appeals tribunal that other criminals in the NSW jail system were claiming the pension.

The welfare agency says it cannot recover the money paid to Toki because it was Centrelink's mistake that led to him being paid the pension for nine months.

Then the federal government had to spend even more taxpayers' money on lawyers to fight a legal challenge by the NSW prison inmate seeking to have his welfare payments reinstated.

Toki is serving a 22-year sentence for the brutal murder in 1999 of his girlfriend Pauline Anne Croarkin in the inner-Sydney unit they shared.

He was charged with malicious damage in 2009 in Goulburn jail but was found not guilty by reason of mental illness. Since then, he has been detained under the Mental Health Act in various mental health facilities, most recently in Sydney's Long Bay jail hospital wing where he applied for his disability pension in May 2010.

Although he is currently being detained under mental health laws, Toki is still serving a sentence for the murder of Ms Croarkin, whom he beat to death in January 1999 after a night's drinking.

Under social security laws, criminals serving jail sentences are not eligible for welfare payments such as the pension.

Toki's payments were stopped in July 2011 when Centrelink discovered that he was, in fact, serving a lengthy sentence for murder.

But the killer appealed to the Administrative Appeals Tribunal arguing that some of his fellow inmates in the jail's mental health ward were being paid disability pensions and that he too was entitled to the money.

But tribunal senior member Jill Toohey, in a decision published this week, found that he was not.

''I have no way of knowing what other people are being paid and no power to make decisions about anyone other than Mr Toki,'' Ms Toohey wrote in her decision.

''If others who are in identical circumstances to Mr Toki are receiving DSP, I understand that he might feel aggrieved but I can only assume, if he is correct, they are being paid in error.

''In any case, it is not a matter that I can investigate as Mr Toki asks me to do.''

The tribunal found that the blunder allowed the killer to claim the disability money.

It was an error that led to Mr Toki being paid DSP in the first place. In a statement issued on Tuesday evening, the minister made her displeasure at the episode plain.

''This is a serious administrative error and should never have happened,'' Senator Payne said. ''This week I will provide the department with a clear indication of administrative expectations in a case such as this.''

The minister also said she had ordered inquiries into Toki's claims that other prisoners were being paid benefits. ''I am asking the department to investigate this urgently,'' she said.