The Prime Minister has warned against a ban on Vegemite in remote communities after reports the spread was being used to make home-brewed alcohol, saying the last thing he wanted was a "Vegemite watch".

A spokeswoman for Indigenous Affairs Minister Nigel Scullion said the minister heard reports the popular spread was being used to concoct home brew in some dry Aboriginal communities in the Northern Territory.

"Addiction of any type is a concern but communities, especially where alcohol is banned, must work to ensure home brewing of this type does not occur," Mr Scullion said in a statement.

"Businesses in these communities also have a responsibility to report any purchase that may raise their own suspicions."

Mr Scullion's comments come after a Brisbane newspaper reported Vegemite was being made into alcohol in large quantities such as in bathtubs in backyards.

The minister stopped short of placing restrictions or bans on the sale of the spread or other yeast-based products in such communities.

Tony Abbott quashed the idea of a ban.

"This is a deregulatory Government and the last thing I want to do is to have a Vegemite watch ... because Vegemite, quite properly, is for most people a reasonably nutritious spread on your morning toast or on your sandwiches," he said.

"What's important is that we ensure that remote communities, all communities, are being properly policed."

AFP/ABC