Monash council will foot the bill to refund $2.6 millon in parking fines to drivers after discovering it had wrongly allowed a contractor to rule on appeals to infringements.

The council, in Melbourne’s south-east, admitted it was "refunding drivers who parked illegally" due to an administrative error.

However, the council said it was not to blame, instead pointing the finger at what it said was confusing state government legislation.

In a statement, the City of Monash said about 26,600 fines issued from 2006 to 2016 — those that motorists had appealed but been rejected — would be refunded.

Monash said that for decades before 2006, its contractor Tenix Solutions had issued and reviewed fines incurred within Monash’s boundaries.