The justice system has been undermined by more than 200 corrupt lawyers who are rorting taxpayer-funded legal aid, says a damning report by Dame Margaret Bazley.

Dame Margaret found lawyers taking backhanders, charging illegal "top-up" fees and grouping together to defraud the legal aid system, which costs New Zealanders $123.9 million a year.

Dame Margaret said she was horrified as she visited courthouses and found lawyers and defendants "abusing the system to the detriment of clients, the legal aid system, the courts and the taxpayer".

She said a small but significant core of lawyers, paid between $105 and $182 an hour, were bringing their profession into disrepute.

Asked how many corrupt lawyers she believed there were, she said "as high as 200 or even more".

Every court was affected, but Manukau District Court was the worst with up to 80 per cent of lawyers "gaming the system".

Dame Margaret said the system was so broken that the only way to fix it was to shut the Legal Services Agency, which administers legal aid, and shift its functions to the Ministry of Justice.

The Law Society has been given three years to clean up the profession or face regulation by the Government.

"The longer I talked to people, the more I found," Dame Margaret said. "I think I could have gone on forever."

Law Society President Jonathan Temm said it could have the accreditation process Dame Margaret recommended set up in six months.

But he criticised the lack of concrete evidence in her report, saying that not naming lawyers left the society "boxing with shadows".

Dame Margaret said she was not able to verify a lot of what she was told, but this was part of the problem as "everyone knows what is going on but no one complains".

She said some matters should be investigated further, including by police.

But the best option overall was to fix the system and get rid of the corrupt lawyers as soon as possible.

She criticised "car boot lawyers" who operated with a phone, and met clients at court with no preparation.

And she said many lawyers simply failed to turn up for cases, usually because they were double-booked.

One defendant spoken to had turned up on three different days, taking a day off work each time, only for the lawyer to not be there and not be able to be reached by phone.

Dame Margaret said some recent immigrant lawyers did not understand New Zealand's cultural and legal framework, and defended clients on the values of the country they came from - which often had different conceptions of corruption.

The legal profession was working as a business not a profession. Good lawyers left criminal law, not wanting to be tainted by association, creating a "race to the bottom".

She said defendants also manipulated the system.

In major drugs trials, defendants would engineer dismissal of lawyers to destabilise the court and dissuade witnesses from co-operating.

Offenders in family violence cases dismissed lawyers in order to prolong proceedings and get the victim to lose confidence in the power of a protection order to persuade them.

One defendant in a family violence case had recently dismissed his ninth lawyer in three years.

Dame Margaret is one of New Zealand's most distinguished public servants. She headed the Department of Social Welfare and led the commission of inquiry into police conduct after the Louise Nicholas scandal.

She was appointed to review legal aid by Justice Minister Simon Power, who said he was shocked by her findings and had underestimated the extent of the problems.

Mr Power, a lawyer, said he was "deeply concerned" about how it reflected on the profession.

He said the problems were compromising the justice system, and he would get Cabinet support on Monday for urgent changes.

These would probably include closing the Legal Services Agency.

But Dame Margaret Bazley says that 200 or more lawyers are rorting the system with tricks like these:

* Lawyers pay backhanders to duty solicitors who recommend legal aid applicants to them.
* Lawyers illegally demand "top-up" cash payments from defendants - sometimes as high as $10,000. Dame Margaret said this was corrupt and should be reported to police and the lawyers disbarred.
* Lawyers in one region allegedly devised a system to defraud the legal aid agency by $75 every invoice. A complaint to the Law Society was not acted upon. Dame Margaret said this should have been a matter for the police.
* Lawyers and defendants collude to make sure cases take as long as possible, a mutually beneficial arrangement under which the lawyer racks up fees and the defendant delays conviction and sentencing.