Labor has joined calls for Centrelink's automated debt recovery system to be halted or scrapped, amid reports low-income Australians are wrongly receiving letters of demand for thousands of dollars in possible overpayments.

Changes in the federal government agency's compliance processes in July have seen welfare recipients' Centrelink records compared with other government records, including reported income information collected by the Australian Tax Office.

Recipients of contested welfare payments are given three weeks to establish their eligibility to have received the payments. Credit:Marina Neil

The Australian Council of Social Service and some MPs have criticised the processes after some Centrelink clients reported receiving computer-generated letters demanding thousand in repayments during the Christmas period, many of which could be in error.

Recipients of contested welfare payments are given three weeks to establish their eligibility to have received the payments.