Attorney-General Mark Dreyfus put an end to the heavily politicised tribunal on Friday, stating the reputation of the body which reviews federal government decisions had been "irredeemably damaged" after "disgraceful" Coalition cronyism.

The government also committed just over $75 million over two years to create a single, streamlined case management system and fix a "shocking" case backlog while a new review body is being set up.

The shadow attorney-general Julian Leeser has accused Labor of going on a political purge.

"This government is all about settling political scores. This announcement undermines the work of the tribunal in holding this Labor government to account," he said in a statement.

"Mr Dreyfus' goal with this body is clear: reconstitute the AAT and stack it from the start. This announcement will cost millions and not deliver access to justice for a single additional Australian."

But Mr Dreyfus has declared the AAT "fatally compromised" by cronyism.

Research by progressive think tank The Australia Institute earlier this year found political appointments to the AAT bounded from 6 in 100 under John Howard, to 2 in 5 under Scott Morrison.

"The AAT's public standing has been irreversibly damaged as a result of the actions of the former government over nine years," the Attorney-General told reporters.

"By appointing 85 former Liberal MPs, former Liberal staffers and other close Liberal associates without any merit-based selection process including some individuals with no relevant experience or expertise, the former government fatally compromised the AAT, undermined its independence and eroded the quality and efficiency of its decision-making."

"This was a disgraceful exhibition of cronyism by the Liberal Party."

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Established in 1976, the AAT was tasked with reviewing a wide range of government decisions, including on immigration, NDIS, taxation, veteran's affairs and welfare.

In opposition, Labor attacked the AAT for keeping former Coalition staffers in six-figure roles, despite some failing to meet performance benchmarks.

A new review body will be established in the new year, with Mr Dreyfus emphasising a "transparent and merit-based selection process" for the appointment of non-judicial members. Current tribunal members will be invited to apply.

"The AAT's dysfunction has had a very real cost to the tens and thousands of people who rely on the AAT chair to independently review government decisions that have made major and sometimes life changing impacts on their lives," the Attorney-General said.

"The new body will have a modern, reliable and fit for purpose case management system that delivers administrative efficiencies for all users."

Mr Leeser backs the existing AAT, saying it has "stood the test of time".

"The AAT takes enormous pressure off the courts and is a vital means by which people, often with limited means, can seek review of government," he said.

The $75 million over two years committed by the Albanese government includes additional 75 members to fix the case backlog, which Mr Dreyfus described as "shocking".