A damning review of legal aid says a sea change is needed to fix a system undermined by incompetent, unscrupulous and sometimes corrupt lawyers looking after their own interests.

The Legal Aid Review report released this morning recommended the Legal Services Agency, which administers the aid, lose its independent status and be folded into the Justice Ministry.

It said administrative costs were out of control and raised serious concerns about how the agency operated which had opened the system up to abuse by bad lawyers.

Legal Aid helps those who cannot pay for their court defence, so their financial circumstances do not deprive them of a fair hearing.

Dame Margaret Bazley headed the review and pulled no punches in the report.

"There is a small but significant group of lawyers, and some defendants, who are abusing the system to the detriment of clients, the legal aid system, the courts and the taxpayer," she said.

"While there are very good lawyers in the legal aid system, there is also a small but significant proportion of very bad lawyers who are bringing themselves and their profession into disrepute."

The situation could not be allowed to continue.

"The damage that incompetent and unscrupulous lawyers can inflict on their unsuspecting clients - and the potential to destabilise the court system, with resulting wasted expenditure of public money - is simply too great."

The report said the ties holding lawyers together as a profession were breaking down, with some lawyers operating as businesses without professional standards, and the legal aid system had played a role in that.

Poor practices included:

* lawyers making sentencing submissions without having read the pre-sentence report;

* lawyers ignorant of legal principles and not realising their own ignorance;

* lawyers failing to turn up to court;

* "car boot lawyers" using a District Court law library phone as their office number and using interviewing rooms as their offices;

* lawyers gaming the system by delaying a plea or changing pleas part-way through the process to maximise payments - Dame Margaret said unverified sources believed up to 80 per cent of lawyers practising in Manukau District Court could be gaming the system;

* lawyers who demanded or accepted top up payments from clients who do not understand legal aid;

* widespread abuse of the preferred lawyer policy by duty solicitors, including taking backhanders for recommending particular lawyers to applicants.

Dame Margaret said it needed to be tougher to become a legal aid lawyer.

A system where lawyers were quickly expelled if incompetent or dishonest was needed, the report said.

Training, pay and other issues also needed to be addressed.

Other problems identified included an operational rather than client focus from the agency, poor relationships between it and the New Zealand Law Society, a reluctance by the agency to exercise its powers, particularly in relation to lawyers, and issues with the governing legislation.

Justice Minister Simon Power, who initiated the review in April, said the report was very concerning and the Government would implement its recommendations quickly.

"When someone as experienced in providing services to the public as Dame Margaret talks about system-wide failings, a system open to abuse, and appalling behaviour, we know we have a problem," Mr Power said.

"What she has identified goes to the very centre of the integrity of our legal system. Things must change, and fast."

Mr Power said he was most concerned about her criticism of how the agency operated and lawyers' behaviour.

The report would raise uncertainty for agency staff and the Government would move quickly to minimise that.

"I will be raising some of the recommendations in Cabinet on Monday to ensure we maintain certainty around the delivery of legal aid.

"We will act on the remainder of the recommendations early in the new year."

The Law Society said it would comment once it had had the opportunity to full study the report.