The Federal Government will set up a wide-ranging independent inquiry into Australia's media in the wake of ALP and Greens criticism of reporting by the Murdoch-owned News Limited group.

The Greens also want the inquiry to look at concentration of media ownership with a view to breaking up News Limited's 70 per cent stranglehold on Australia's newspapers.

However, Government sources say the terms of reference are still under discussion.

In July, Greens deputy leader Christine Milne confirmed her party's policy is for the Australian Competition and Consumer Commission (ACCC) to be given the power to order the divestment of media groups "where those mergers fail a media-specific public interest test".

"Let's see what an inquiry has to say about what the broader community think about the divesting of assets and the breaking up of some of these companies and controls of separate parts of the media," she said at the time.

Greens leader Bob Brown has been critical of political coverage by the Murdoch-owned Australian newspaper, calling it the "hate media" and accusing it of bias.

Senior Government ministers Wayne Swan and Stephen Conroy have also been critical of News Limited reporting, particularly that of Sydney's Daily Telegraph.

A senior Government source today insisted the inquiry will not be a "get News Limited" probe but would probably look more widely at strengthening media watchdogs like the Press Council - often considered a toothless tiger.

The role of the government broadcast regulator, the Australian Communications and Media Authority (ACMA), is also likely to come under scrutiny.

The source said the inquiry will not be about politicians trying to avoid scrutiny but more about protecting individuals' privacy.

During today's Labor Caucus meeting, one member called for the break-up of News Limited's stable of newspapers.

Communications Minister Senator Conroy told the meeting he did not need an inquiry to know there was bias in some areas, but that any inquiry should not just be about News Limited.

In July Mr Conroy was bitterly critical of the Daily Telegraph, accusing it of trying to bring down the Government.

"If you're a Labor voter reading The Daily Telegraph, you should keep reading it for the footy coverage but you shouldn't take seriously any of its front-page headlines," he told ABC Radio at the time.

"It is just running a campaign on regime change."

Hacking scandal

Prime Minister Julia Gillard brought up the prospect of an inquiry after the phone hacking scandal in Britain was revealed.

She said people were "disturbed" by what they had seen happen in the UK "with phone hacking and the like".

The scandal led to the closure of the 168-year-old News Of The World paper, the first masthead Rupert Murdoch bought in Britain.

"I do believe Australians, watching all of that happening overseas with News Corp, are looking at News Limited here and wanting to see News Limited answer some hard questions," Ms Gillard said in July.

News Limited chief executive John Hartigan has said News journalists in Australia do not use phone hacking and he was "hugely confident" there was no improper conduct in his newsrooms.

"I've worked in newspapers for 45 years, a lot of that as an editor. I know the newsrooms, I know how cultures develop, and I'm hugely confident there is no improper or unethical behaviour in our newsrooms," he said.

A government source says News Limited is not accused of phone hacking in Australia, with one Caucus member noting there is no evidence it has been happening here.

There is no timeframe set yet for the inquiry.

The terms of reference have not been finalised, but Opposition Leader Tony Abbott says the inquiry is unnecessary and evidence of an arrogant, bullying government.

"This is a naked attempt to intimidate the media. The problems of this government are not the fault of the media, the problems of this government are its own fault," he said.

"It's not bad coverage which is killing this government, it's poor performance."