Last month, the New South Wales Aboriginal Housing Office stopped accepting statutory declarations as proof of indigenous heritage.
Social housing applicants must now have their Aboriginality confirmed by land councils and indigenous organisations.
NSW Community Services Minister Brad Hazzard said his office is reviewing the Housing Office's decision.
"Under the proposal stat declarations will not be an option now I'm not necessarily sure that I agree with that and that's why I want to look at the whole system," he said.
"We need to have a system that applies across all government agencies."
Warren Mundine, the chairman of the Prime Minister's Indigenous Advisory Council, has called for the establishment of a national database of Aboriginal people.
Mr Mundine says such a database would help overcome allegations of corruption and fraud.
"I can walk in and get a passport and have to prove who I am. I'm a citizen of Australia to get that passport," he said. "Why shouldn't we be up for the same scrutiny?"
He said it would enable Indigenous Australians to prove their identity, which is required to access certain services or perform certain duties.
"it's quite clear you're in or you're out."
"And of course on a more practical level, if you're accessing housing, if you're accessing government procurement contracts, or being able to vote at land council meetings, and so on, then it's quite clear you're in or you're out."
He says a well-researched national database would also make it easier for Indigenous people to find out which First Nations they belong to.
"What you'll find is like my case, I come from a number of areas. I've got Bundjalung and Goombander and Yuin blood in me, as well as a good touch of the Irish, but we could sort through all that stuff and people can identify from there," he said.
But he says the process and the body established to oversee it must be independent, transparent and run by Indigenous people.
"Just from the historical approach because our people have been so knocked around and by governments of all political persuasions, of all political levels, that we have a distaste for trusting those type of organisations."
NITV News went to Redfern, a Sydney suburb with a strong Indigenous community, to talk about how people felt about Mr Mundine's proposal. "That'd be awesome," said one local woman. "From the moment babies are born ... there's gotta be some sort of a system where, like Ancestry.com, you know, people can go and check their history out ... I think there should be one for Indigenous [people] as well."
There has been opposition to Mr Mundine's proposal.
"I personally find it offensive that I have to produce anything about my Aboriginality."
The NSW Deputy Opposition Leader, Linda Burney, said "I personally find it offensive that I have to produce anything about my Aboriginality.
"How dare there be a national register of one particular group within Australia. It would be as fraught as this debate around proving your Aboriginality."
Human rights activist Aunty Jenny Munro suggested that the government would be exercising a double standard by enacting an identity database for First Peoples.
"We've had how many generations of fair-skinned children removed, and they live with that problem every day of their lives because they have fair skin," said Aunty Munro.
"And they had no choice in that process. This country condemns them because they were stolen, removed by government, forces of control and oppression were used against them, and here they are questioned again about Aboriginality."
The Australian government was accused of cultural genocide by the Australian Human Rights and Equal Opportunity Commission in its Bringing them Home report in 1997, for assuming legal guardianship of Indigenous children to assimilate them into white culture.
The commission used the definition of genocide as described within the 1948 UN Convention on the Prevention and Punishment of the Crime of Genocide: "Forcibly transferring children of the group to another group” with the intent to “destroy, in whole or in part, a national, ethnical, racial or religious group, as such."
While Mr Mundine says he has discussed his idea with the Indigenous Advisory Council, he says that he could face resistance.
"I'll talk to the Prime Minister and Cabinet about these things. They'll be very reluctant to look at this area because they have the same fears of governments shouldn't be interfering about defining who is Aboriginal and who is not Aboriginal."
Mr Mundine added that Australia could learn from the mistakes made by other countries, such as Canada when considering a system to officially identify Indigenous peoples.