A catch-22 of citizenship laws has rendered an unknown number of PNG-born Australians temporarily stateless and fuming at the government’s failure to recognise their citizenship.

Thousands of people may be affected by the “administrative error” that Australia says resulted in citizenship certificates and passports being incorrectly issued over more than 40 years.

A situation that arose from a tangle of complicated citizenship law, bureaucratic bungling and tighter immigration rules has left people distressed at the loss of their identity, in fear of deportation and furious at the financial and emotional toll.

Until 1975, Papua New Guinea was administered by Australia, and people born in Papua (the south-eastern part of the island that was a commonwealth territory) were entitled to a level of Australian citizenship. At independence, those with at least two Papuan grandparents automatically acquired PNG citizenship. But in an unknown number of those cases the Australian government led people to believe they remained Australian citizens.

In 1994, to rectify that error, the government created special circumstances visas for such people, but neglected to inform them. Those with Australian passports simply renewed them without hindrance. But with the recent tightening of regulations requiring people renewing passports to prove their citizenship again, former Papuans who thought they were Australian have received a nasty shock, sometimes at the worst possible moment.

In February Vitoula Bird, the daughter of an Australian second world war veteran and a Papua New Guinean woman, and niece of the famed outback aviator Nancy Bird-Walton, was racing the clock.

She needed to travel to PNG within two days to visit an 81-year-old uncle who had had a stroke, but was told her life-long Australian citizenship was a mistake, and she had no visa which allowed her to be in Australia.

Bird was born in 1957. She and her family left PNG shortly before independence, spending 18 months in Europe before arriving in Australian in 1976. She said she had received her first Australian passport in 1974, and they had been issued consecutively until 2009.

In correspondence seen by Guardian Australia, the home affairs department told her the government had made an “administrative error” some decades back which led a “small number of people” born in Papua to believe they were Australian citizens when they were not.

“The department incorrectly issued you with evidence of your Australian citizenship on 20 September 1985,” it said, and asked her to return her now-voided citizenship certificate “as soon as possible”.

Bird was given two options: obtain a bridging visa, which would legalise her presence in Australia but not allow travel; or apply by post for a permanent residence return visa, at a cost of $375. Both would take some time.

“The government is denying me passage to go to PNG to visit my uncle who may be on his deathbed,” Bird told them. Her uncle died the following day.

Vitoula Bird is the daughter of an Australian second world war veteran and a PNG woman, and niece of the famed outback aviator Nancy Bird-Walton. Photograph: Vitoula Bird

At the same time Bird received a letter from PNG authorities informing her she was not a PNG citizen, because she had Australian citizenship. Each country insisted she didn’t belong to it, because both believed she belonged to the other.

Home affairs confirmed for the moment she was effectively stateless.

Bird’s case is not unique – her two sisters have been through the same experience, including one who served in the Australian Defence Force for 30 years.

“They’re putting us through hell,” Bird said. “After 40 years you’d think the government would recognise they made a mistake and the PNG government had made a mistake by not telling us we lost our rights in 1975.”

The scale of the problem is unknown but may involve thousands of people. The department has no numbers. Some cases have unsuccessfully gone to the high court, and some are included among the controversial “character test” deportations of people who have spent their lives in Australia.

At the time of the 2011 census, there were almost 27,000 PNG-born people living in Australia, more than 10,000 of them born before PNG independence.

Bird says she knows of several people who believe the Australian government has grown increasingly hostile to non-citizens and fear deportation.

Both Australia and PNG have said she is eligible for citizenship under their respective laws, she just needs to go through the process.

But it’s the process that has upset people.

“We’re faced with all these challenges and obstacles, and everyone is upset. They said they would fast-track [our applications] but that’s not the point,” Bird says.

She has started a Facebook group, Australian citizens born in Papua New Guinea, hoping it draws others out to seek support or to campaign for an amnesty.

“That would be the right thing to do … not [making them] pay for their citizenship and writing off their whole life,” she says.

“It’s caused so much stress. I know what it’s done to my family, but there are so many other people who probably haven’t had the outlets and support my family’s had.”

Bird has since been placed on a bridging visa to legalise her presence while she applies for citizenship.

The home affairs department told Guardian Australia determining the status of this cohort “can be complex as it involves the interpretation of both Australian citizenship law and the PNG constitution”.

The department said it was aware of the concerns among Australia’s PNG-born cohort and had set up pathways specifically for them “to regularise their status and apply for Australian citizenship”.

The department said current law did not allow for the creation of any amnesty, or applying retrospective citizenship, and that there was “no ability under the regulations to waive the fee for such cases”.