The Australian government has launched an inquiry into the foreign ministry's handling of the imprisonment and suicide of an Australian Jew said to be a Mossad agent.

ABC news revealed that an inmate known only as Prisoner X, who hanged himself in an Israeli high-security cell in 2010, was Australian Ben Zygier.

ABC said that Zygier, 34, moved to Israel from Melbourne in 2000 and joined Israeli spy agency Mossad, disappearing from the radar of the Australian authorities. He adopted the assumed name of Ben Alon or Ben Allen, said the report.

He remerged 10 years later, after his parents contacted the Australian Department of Foreign Affairs asking for help in repatriating his body. Father-of-two Zygier, who was married to an Israeli woman and publicly listed as a lawyer, had reportedly committed suicide in a Tel Aviv prison.

According to ABC, Zygier was incarcerated in a high-security cell at Ayalon prison in Ramla, which was built to hold Yigal Amir, the assassin of prime minister Yitzhak Rabin in 1995.

Inside, Zygier became known as Prisoner X but his existence was denied by Israeli authorities, which imposed a gagging order preventing details of the case to be published, according to Israeli news site Ynet in June 2010.

A few months later Ynet reported that despite tight surveillance, Prisoner X had committed suicide in his cell.

Diplomats informed

Government sources in Canberra told The Australian newspaper that it was not known if Prisoner X and Zygier were one and the same person.

Foreign affairs minister Bob Carr acknowledged that diplomats had been informed of Zygier's jailing months before he died but had failed to pass on the information.

Carr told foreign affairs department boss Peter Varghese to review the handling of this consular case.

Carr told ABC he was troubled by the possibility of an Australian national working for a foreign intelligence agency.

"Australians should not be performing intelligence-gathering functions for a foreign government using their passport," he said. "They would have breached half a dozen laws doing that."

The Israeli parliament, or Knesset, has debated the issue after an MP questioned justice minister Yaakov Neeman about Prisoner X.

"Do you confirm the fact that an Australian citizen committed suicide in a prison under a fake identity and without it being published?" Ahmad Tibi, an Arab lawmaker and prominent government critic, asked.

"I cannot answer these questions because the matter does not fall under the authority of the justice minister," Neeman replied. "But there is no doubt that if true, the matter must be looked into."