An ambitious but controversial plan for a central identity database of Australians has been rejected by the Federal Parliament's security and intelligence committee.

Key points: A Coalition-led parliamentary committee wants a Government bill rejected and redrafted

A Coalition-led parliamentary committee wants a Government bill rejected and redrafted It had been considering allowing the Department of Home Affairs to set up a national identity sharing database

It had been considering allowing the Department of Home Affairs to set up a national identity sharing database The committee said the bill does not have enough safeguards, oversight and transparency

The bill would allow the Department of Home Affairs to collect, verify and share identity information across Commonwealth and state and territory governments and included plans for a face verification service that would make it easier for documents containing photos of people to be verified online.

But in a rare move, the bi-partisan Parliamentary Joint Committee on Intelligence and Security (PJCIS) recommended the bill be re-drafted, arguing necessary safeguards had not been adequately explained.

"The committee … expresses broad support for the objectives of the bill but agrees that the bill as it stands does not adequately incorporate enough detail," committee chairman and Liberal MP Andrew Hastie said.

"It is for this reason that the committee recommends that the identity matching services bill 2019 be redrafted."

Shadow Attorney-General and committee member Mark Dreyfus said the bill contained "almost no limitations or safeguards at all".

"Labor and Liberal members of the committee are uniting to recommend that the identity matching services bill be completely redrafted and referred back to the intelligence and security committee for further inquiry when it is re-introduced," he said.

Andrew Hastie chairs the Federal Parliament's powerful security and intelligence committee. ( ABC News: Ian Cutmore )

Speaking about the bill in Parliament earlier this year, Immigration Minister David Coleman said it would help to combat identity theft and other crimes.

"The new face-matching services enabled by this bill will make it harder for people to obtain driver licences in false identities in an attempt to conceal their true identity or avoid traffic fines, demerit points or licence cancellations," he said.

"This will improve road safety by increasing the detection and prosecution of these offences and deterring dangerous driving behaviour."

The legislation's explanatory memorandum said any impact on human rights, particularly the right to privacy, were "reasonable, necessary and proportionate."

A spokeswoman for Home Affairs Minister Peter Dutton noted the recommendations and said the government would "work with the PJCIS to legislate these laws".

Law Council president Arthur Moses welcomed the call to re-draft the legislation.

"There are undoubtedly legitimate and proportionate public interest uses for facial recognition technology, particularly in relation to law enforcement and national security," he said.

"But there is an urgent need for appropriate and legislated boundaries to govern its application and ensure robust and independent oversight."