The Department of Foreign Affairs has been forced to explain why Australia's ambassador to Iraq met with a US-designated global terrorist last month.

Photos on social media showed ambassador Paula Ganley in a meeting with political and paramilitary leader Qais al-Khazali in January.

Al-Khazali was listed as a specially designated global terrorist in 2020 by the United States, and his party Aas'ib Ahl al-Haq (AAH) a foreign terrorist organisation.

Then-secretary of state Mike Pompeo said al-Khazali and AAH were "violent proxies" of the Islamic Reoublic of Iran, who used violence and terror "to further the Iranian regime's efforts to undermine Iraqi sovereignty".

The US State Department said AAH, led by al-Khazali and his brother Laith, were responsible for more than 6,000 attacks against US and Coalition forces since 2006, including the downing of a British helicopter and an attack that led to the capture and murder of five American soldiers.

The US has also blamed al-Khazali and others for an attack on its embassy in Baghdad on New Years Eve 2019.

Australia's foreign affairs department said the party and its leader were not listed as terrorists here, but that they were aware of the meeting.

"He's the head of a political party in Iraq, that political party is part of the governing coalition of the Iraqi government, his party has a minister in the current Iraqi government," department official Marc Innes-Brown told a senate estimates hearing.

"So the ambassador as part of her ongoing work to be in touch with various political actors, political party leaders in the country to be across political developments has met this individual."

Al-Khazali was captured by British SAS forces in 2007 but released in 2010 in exchange for British national Peter Moore, who had been kidnapped by AAH.

Senator Claire Chandler questioned the purpose of the meeting.

"The reality is in Iraq, a country that's had decades of conflict, there are a range of people that have different backgrounds, and now some of them are in the political mainstream," she said.

"[Al-Khazali and AAH] certainly have strong connections to Iran, there's no question about that."