The Reserve Bank of Australia on Monday admitted staff from a subsidiary visited Iraq at the height of UN sanctions after it was accused of attempting to strike an illegal deal with Saddam Hussein.

A joint investigation by the Australian Broadcasting Corporation and Fairfax Media said secret files showed officials from the central bank's scandal-hit Note Printing Australia (NPA) went to Iraq to discuss a contract to turn the country's paper currency into polymer notes.

During the 1998 trip, codenamed Delta Project, they met a middleman -- former dictator Hussein's brother-in-law and bodyguard Arshad Yassin, the reports said.

"Indications from Arshad Yassin's office are that Saddam Hussein's office has already allocated $US65 million for the total project," RBA officials said in one document, the media groups reported.

"He has confirmed that Saddam Hussein has seen the polymer notes samples and is keen to adopt our product."

Reserve officials working for NPA said the funds could potentially be accessed by funnelling them through a Jordanian bank "with the green light of SH (Saddam Hussein)," it was alleged.

The operation was called off six months later after Australian diplomats uncovered the secret dealings with the brutal regime, according to the ABC.

The RBA admitted officials made the trip, as calls mounted for a full inquiry.

"The visit in 1998 was, in the opinion of the bank, ill-advised," it said in a statement.

"No banknotes were ultimately supplied to Iraq. On the records available to the bank, the project went into abeyance after concerns were raised by DFAT (Department of Foreign Affairs and Trade) with the then-CEO of NPA."

David Chaikin, a legal expert at the University of Sydney who reviewed the confidential bank documents, said the negotiations were a violation of international law and alarm bells should have been sounded "to the highest levels of the bank".

"What was happening is not only in violation of law, but could potentially destroy and undermine the reputation of Note Printing Australia and its owner, the Reserve Bank," he told the broadcaster.

He added to Fairfax that the files contained a "very strong prima facie" case that officials involved in the trip had breached a UN sanction that banned Australians from promoting the sale or supply of goods to Iraq.

NPA has been plagued by allegations of corruption in recent years, with claims it and another RBA subsidiary Securency paid bribes to win plastic bank note contracts in Asia.

Executives from both companies have been charged over the alleged racket, which involved contracts in Indonesia, Malaysia, Vietnam and Nepal, following an investigation by Fairfax in 2009.

The RBA has previously denied it attempted to hide information related to the Asian contracts, with bank chief Glenn Stevens telling an inquiry last year that he knew nothing about the scandal before it was exposed.

Whistleblower Brian Hood, a former NPA executive, told the ABC and Fairfax that Stevens' testimony "wasn't the truth" and the RBA knew of the allegations in 2007, claims the bank rejected Monday.

"The governor has always answered questions in parliamentary proceedings fully and truthfully," it said.

Australian Greens Party deputy leader Adam Bandt said the latest revelations were disturbing.

"Most Australians would be shocked to know their central bank was using their money to line up dirty deals with Saddam Hussein," he said.

"The stench surrounding the Reserve Bank gets worse and a full inquiry is needed to clear the air."