Aboriginal and Torres Strait Islander Social Justice Commissioner Bill Jonas says it appears to suit the Federal Government's agenda to allow ATSIC to fall into a state of disarray.

The Commissioner made the comments at the launch of his new social justice report in which he described the Government's approach to Indigenous issues and reconciliation as a failure.

It comes as the Prime Minister today questioned the existence of ATSIC, after it helped fund the legal costs of Geoff Clark.

Doctor Jonas says while the Government has let it slip into uncertainty, ATSIC needs power to hold other Government departments accountable for how they spend Indigenous funding.

"It's a terrible thing to have an organisation which, because this is going on is inevitably ... in an unstable situation," Dr Jonas said.

"Why would a Government want to keep an Indigenous organisation in an unstable situation unless it was suiting their purposes?"