The Daily Telegraph estimates the government is racking up a monthly bill of $2.5m to house 500 asylum seekers after the immigration department said it paid $60,000 a night to house up to 200 people at Darwin's Airport Lodge last November.
The row comes on the day of funerals for victims of the Christmas Island boat tragedy.
The opposition attacked the government's decision to fly relatives from Christmas Island to the funerals in Sydney, because it was too expensive.
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It said the funerals should have been held on Christmas Island. But the Refugee Action Coalition told the ABC that offshore detention is the problem.
Cabinet minister Craig Emerson has defended the hotel costs, telling Sky News the previous coalition government had also used hotels to house asylum seekers and it's something that happens from time to time.
But Liberal frontbencher George Brandis says the cost is the result of the surge in asylum seekers because of Labor policy.
The Refugee Council of Australia has urged the government to consider community detention as an alternative.
