Israel's prime minister says the country's security forces must be allowed to get on with their work "quietly" after an explosion of interest in the case of an Australian who died in a secret prison cell.

Prisoner X, identified by the ABC's Foreign Correspondent as Ben Zygier, died in a prison near Tel Aviv in 2010 in a case Israel went to extreme lengths to cover up by imposing media gag orders.

The Australian-Israeli citizen was thought to be an agent for Israel's Mossad spy agency.

In his first comments on the case, prime minister Benjamin Netanyahu told his outgoing cabinet on Sunday that people should consider the effect the attention of the case has had on Israel's security.

"I ask everyone: let the security forces continue to work quietly in order that we can carry on living in peace and security in Israel," he said.

"Overexposure of security and intelligence activities can damage, and damage badly, state security and that is why in every debate we must not underestimate the security interest.

"And in the reality in which Israel lives, it must be a central interest."

He also insisted that Israel was an "exemplary democratic state which protects the rights of those under investigation."

Australia's Foreign Minister, Bob Carr, has ordered his department to prepare a report into the case.

He says his department has asked Israel to explain the circumstances surrounding the detainment and death of Mr Zygier.

"The report will canvass all consular contact between Australia and between Israel, contact of any other kind including contact of security agencies," Senator Carr said.

"And we've ask the Israeli government for a contribution to that report.

"We want to give them an opportunity to submit to us an explanation of how this tragic death came about."

The Federal Government has confirmed it was told, through intelligence sources, of Mr Zygier's detention in February 2010 under Israeli security law.

'Extreme situations'

Last week, Israel confirmed having held an Israeli-Australian citizen in solitary confinement under a false name.

But in an interview with Channel 2 television at the weekend, Israel's deputy prime minister, Moshe Yaalon, would not confirm Prisoner X was Mr Zygier nor provide details on the nature of his suspected offence.

"There are extreme situations - we are a special country as far as the security situation goes - in which for security reasons, even life-endangering situations, such extreme measures must be taken," he said.

"One must assume that if we reached this situation, there was a mishap that necessitated the measures taken by the body at hand," Mr Yaalon added in reference to Mossad.

Mr Yaalon said "we are not a country that acts in the dark".

"This is a country that when as an extreme measure we need to isolate a prisoner or even imprison him under false identity, it is done with legal supervision, with the knowledge of the authorities, under the supervision of the legislature and with his family's knowledge."

A justice ministry statement said his family was informed of his arrest and that he had legal representation.

ABC/AFP