The Federal Opposition is calling for an independent inquiry into the Government's handling of an asylum application by an Egyptian man who is a convicted terrorist and murderer.

The man and his family arrived in Australia in May last year and he was mistakenly cleared by ASIO to be released into community detention in the Adelaide Hills.

The man spent five months there before the Australian Federal Police discovered he was the subject of an Interpol red notice which showed he had been convicted in absentia on murder and terrorism charges in 1999.

AFP officials told a Senate hearing yesterday they established the man's identity last November, and advised the Immigration Department.

Key points Egyptian man was convicted in absentia of terrorism and murder in 1999

Egyptian man was convicted in absentia of terrorism and murder in 1999 Arrived in Australia in May 2012

Arrived in Australia in May 2012 Spent five months in community detention before being moved to Villawood

Spent five months in community detention before being moved to Villawood ASIO says clerical error may have been to blame

But he remained in low-security detention until April this year, when he was moved to the high-security Villawood detention centre in Sydney.

Opposition Immigration spokesman Scott Morrison is blaming the Government for the "disgraceful incident", and is demanding an independent inquiry.

"The Government was grossly negligent in keeping a known and convicted jihadist terrorist in low security asylum seeker family accommodation at Inverbrackie for five months," Mr Morrison said.

Yesterday ASIO head David Irvine told a Senate estimates hearing he believed a clerical error may have led the spy agency to initially clear the man for community detention.

"There are issues regarding their part of the process certainly, and when were they [ASIO and the AFP] talking to each other," Mr Morrison told the ABC.

"The bit that continues to concern me is why the Minister for Immigration, the Department of Immigration, allowed this individual to stay in such a low-security facility for so long."

"ASIO have 'fessed up to their role in this process, they've admitted their mistake, but we've heard no expressions of concern from the Minister for Immigration."

Mr Morrison said the Coalition would be demanding a parliamentary inquiry into the incident when Parliament returned on Monday if Immigration Minister Brendan O'Connor did not move to initiate an independent inquiry.

Mr O'Connor has not directly responded to the Opposition's call.

A spokesman for the minister said: "Scott Morrison has revealed he prefers scaremongering and spin over national security".

"Scott Morrison has demonstrated why the Coalition is not ready to govern - he's willing to exploit national security matters to whip up fear and grab a headline."