The Federal Government has agreed to pay a confidential settlement to a nine-year-old Iranian asylum seeker over her detention on Christmas Island.

Lawyers for the girl, who was five at the time she was detained, alleged she received inadequate care on Christmas Island where she was held for 13 months in 2013 and 2014.

It was argued the girl developed post-traumatic stress disorder, a recurrent dental infection, a stammer, separation anxiety and major depression.

The settlement between her lawyers and the Federal Government was approved by the Victorian Supreme Court ahead of an eight-week trial which was due to start today.

The terms of the settlement will remain confidential.

In a statement, a spokesperson from the Department of Immigration and Border Protection said the Commonwealth does not admit liability.

"As this matter is still before the court in relation to some outstanding issues, it would not be appropriate for the department to comment further," it said.

The girl, who cannot be identified, arrived on Christmas Island by boat with her family and now lives in Australia on a temporary bridging visa.

The girl's litigation guardian, Sister Brigid Arthur, with Thomas Valentine, the lawyer who ran the case. ( ABC News: Emma Younger )

Her litigation guardian, Sister Brigid Arthur, said the girl's family was relieved the case had settled.

"While it's an effort to get justice it's also an extra trauma for them and an extra thing that they were waiting for a response to," she said.

"Families in this situation just have an ongoing waiting, waiting, waiting."

The case was initially launched as a class action on behalf of other asylum seekers who said they also suffered injury while being detained on the island.

About 35,000 people were held in offshore detention centres on Christmas Island in the period covered by the class action claim, between August 2011 and August 2014.

Asylum seekers urged to make claims

But the court earlier ruled the case should proceed as an individual claim only because claims made by the class action group members were too different.

Lawyer Thomas Ballantyne from Maurice Blackburn said despite the court refusing to hear the case as a class action, asylum seekers should be encouraged to make individual claims for compensation.

"This case really will have made subsequent cases a lot easier," he said.

"It's really important too that this litigation continues to shine a light on what happened on Christmas Island.

"So in that respect we'd also be hopeful that more people come forward."