The corporate regulator has revealed it accidentally blocked access to 250,000 websites because its staff misunderstood a basic feature of internet technology.

The Australian Securities and Investments Commission (ASIC) made the blunder when it tried to blacklist a small number of websites it suspected of defrauding Australians.

In a submission to a parliamentary inquiry looking into which government agencies should have the power to block access to websites, ASIC revealed the staff who ordered the blocks did not realise that suspending access to the site would affect many more hosted on the same internet protocol (IP) address.

The regulator said in April last year it blocked access to two foreign websites called Global Capital Wealth and Global Capital Australia.

In the process, it blacked out more than 1,000 other sites hosted at the same IP address, including a public education group called Melbourne Free University.

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The watchdog said after being alerted to the problem it lifted the bans and conducted a review.

The review revealed a previous order had knocked out access to 250,000 websites, although ASIC said 99.6 per cent of those sites contained no "substantive" content.

As a result it ended a run of 10 website blocks ASIC had ordered since 2012 under section 313 of Australia's Telecommunications Act. The watchdog has not ordered a block since.

In its submission, the watchdog said it wanted section 313 maintained but with clear rules around transparency and information sharing among agencies.

ASIC declined to be interviewed for this story.

Misunderstanding 'hilarious and frightening'

Technology commentator Stilgherrian said it was reasonable to expect that people working in ASIC's department responsible for blocking access to criminal websites would understand that one IP address could host more than one website.

"It's absolutely basic to an understanding of how the internet works, how the web works, how even you put together a website to know that there could be any number of websites on one IP address, or there could be any number of IP addresses used by a large website to distribute the load, or to distribute it around the planet," Stilgherrian said.

"This demonstrates that at the time, the people that ASIC was tasking to block websites did not understand even the basics of how websites work.

"That's both hilarious and frightening."

Communications Minister Malcolm Turnbull ordered the parliamentary inquiry into section 313 in July.

The University of Canberra's Assistant Professor Bruce Baer Arnold has used his submission to the inquiry to call for a tightening of the law.

"It's fairly vague. And as a society, we want people to behave in a lawful way, but we have a legal system, we have courts," he said.

"People are innocent until they're proven guilty, and we shouldn't have possibly an overzealous official in the Australian Federal Police, or in ASIC, or in a trade practices regulator, a consumer protection agency — or even in the RSPCA — to be able to, for example, take particular information off the net for practical purposes, remove websites, take them offline because, well 'I think it's a good idea'."