Updated July 28, 2018 13:17:34

Photo: Mr Andrews has already apologised for the rort and the party has repaid the money.
(AAP: Tracey Nearmy)

Victorian Premier Daniel Andrews has denied claims his government is in crisis after the launch of a new police investigation into the misuse of public money during the 2014 state election campaign.

He also rejected suggestions those involved should be stood down during the investigation.

In March, the state ombudsman found Labor had misused more than $388,000 of taxpayer funds by employing electorate officers to political purposes.

The report by Deborah Glass found 21 MPs had breached parliamentary guidelines by certifying payments to electorate officers who were actually used to campaign for Labor during the 2014 election.

Officers are banned from political campaigning.

The Labor Party has since repaid the money and Mr Andrews said he was sorry it happened.

Police yesterday announced the fraud squad would investigate whether there had been any criminal wrongdoing.

Opposition Leader Matthew Guy said all ministers caught up in the scheme should be stood down while the police investigation takes place, a demand Mr Andrews has rejected.

"The Department of Justice has received an assurance from Victoria Police that the work of Victoria Police is well and truly at arms length from the ministers, ministers' offices and the department itself," the Premier said.

"That assurance has been given by Victoria Police.

"So there's simply no need to take the action that you've outlined."

Asked if he and his ministers would cooperate with the investigation, he said yes.

"Everybody should cooperate and everybody will," he said.

Mr Guy said there was no precedent for a government trying to "manage" such a situation.

He compared it to the resignation of Labor MP Adem Somyurek over bullying allegations in 2015.

"Daniel Andrews stood down Adem Somyurek because he was being investigated by the Department of Premier and Cabinet," he said.

"Mr Andrews said it was the right thing to do for the sake of integrity.

"Well where's the same integrity from that Premier today when a third of his Cabinet is under investigation by the police fraud an extortion squad."

Mr Andrews said the Government and his ministers remained "utterly focused" on getting things done and rejected suggestions they should be stood down.

"They will all continue to do the important work that they need to do, getting on and delivering in road and rail, hospitals and schools, jobs and TAFE," Mr Andrews said while inspecting the progress of work on the Metro Tunnel.

Environment Minister Lily D'Ambrosio, Sports Minister John Eren, Special Minister of State Gavin Jennings, Youth Affairs Minister Jenny Mikakos, Attorney-General Martin Pakula and Corrections Minister Gayle Tierney and Police Minister Lisa Neville were among the 21 Labor MPs the ombudsman found certified payments to electorate office staff who were doing campaign work.

Topics: states-and-territories, state-parliament, parliament, government-and-politics, alp, political-parties, parliament-house-3002, vic, melbourne-3000

First posted July 28, 2018 11:44:05