Three Melbourne councils will refund about $20 million in parking fines after the Victorian Ombudsman found they probably acted illegally when they outsourced their fines review process to a private company.

The councils in Melbourne's south-east – Port Phillip, Stonnington and Glen Eira – used a private contractor to determine whether fines were valid when motorists challenged them.

Parking fines will be refunded by three local councils. Credit:Eddie Jim

The fines covered popular hubs including St Kilda, South Yarra and Caulfield, and spanned the decade to 2017.

Victoria's Ombudsman, Deborah Glass, found that by not reviewing the fines internally, the councils' actions "appear to be contrary to law".