The Federal Government has announced an inquiry into the "national disgrace" of Indigenous Australians being held behind bars.

Key points: As of June 2015, Indigenous prisoners accounted for 27pc of prisoners, despite making up 2pc of population

As of June 2015, Indigenous prisoners accounted for 27pc of prisoners, despite making up 2pc of population Announcement comes 25 years after final report of Commission into Aboriginal Deaths in Custody

Announcement comes 25 years after final report of Commission into Aboriginal Deaths in Custody Bar association president welcomed the inquiry, describing rate of incarceration a "national disgrace"

Federal Attorney-General George Brandis has announced the Government will ask the Australian Law Reform Commission to examine the factors leading to the overrepresentation of Indigenous Australians in prison.

"I have decided to make a new reference to the Australian Law Reform Commission, to ask them to examine the incarceration of Indigenous Australians, and to consider what law reform measures can be put in place to help ameliorate this national tragedy," Senator Brandis said.

"The Commonwealth will collaborate with state and territory governments, as theirs are the jurisdictions of course with primary responsibility for our criminal justice frameworks, including policing."

It follows the decision to call a royal commission into the Northern Territory juvenile justice system, following the Four Corners report into the treatment of children at the Don Dale detention centre.

More than one in four Australian prisoners are Indigenous, despite making up just 2 per cent of the overall Australia population.

Indigenous young people are 24 times more likely to be behind bars than their peers.

Legal and human rights groups have been campaigning for the Federal Government to intervene, but the Coalition has previously sought to highlight the lead role of the states and territories.

The announcement about the inquiry comes 25 years after the final report of the Royal Commission into Aboriginal Deaths in Custody.

Labor senator Patrick Dodson, who was one of the commissioners at the time, told a Senate hearing last week there was "appalling" ignorance about the years of lobbying to put the recommendations in place.

Labor changes tune on inquiry support

Labor is now in favour of the inquiry, but earlier this morning — when it was first announced — shadow attorney-general Mark Dreyfus said it was not needed.

A joint statement from Opposition Leader Bill Shorten, assistant Indigenous affairs spokesman Pat Dodson and Mr Dreyfus was released this afternoon

"Labor welcomes today’s announcement," the statement said.

"The Government should not use today’s announcement as an excuse for delay."

But earlier Mr Dreyfus had a different view.

"We don't need another inquiry," he told reporters this morning.

Mr Shorten has also renewed calls for the Government to consider how to increase non-custodial options for offenders.

Australian Bar Association president Patrick O'Sullivan welcomed the inquiry in a statement, describing the rate of Indigenous incarceration as a "national disgrace".

"This announcement [is] a significant opportunity to make informed and practical changes that address this problem and deliver better justice outcomes for Indigenous Australians and the country as a whole," he said.

Rod Little from the National Congress of Australia's First Peoples said the Government should start by looking at the findings of the 1991 Royal Commission into Indigenous Deaths in Custody.

"If there was a thorough analysis of what had been implemented and not implemented, to see what the success of those would be, it would be a good start point for an inquiry," he said.