Art galleries, dealers and auction houses have been urged to sign up to code of conduct aimed at ending dodgy sale practices within the multi-million-dollar Australia's indigenous art sector, an official said on Thursday.

The voluntary code followed a 2007 Senate inquiry that found many indigenous artists were working in squalor for minimal pay, drugs and second-hand cars.

The inquiry also found that the industry had been swamped with fakes and poor-quality work because of a lack of regulation and sweatshop-like practices.

Federal Arts Minister Peter Garrett said many of those problems were ongoing.

"So this is a great opportunity for the indigenous arts community to make a stand against unprofessional dealings," Garrett said in a statement on Thursday.

The government has provided 600,000 dollars (527,194 US dollars) to implement the code which will be administered by public company -- Indigenous Art Code Limited.

Australian artists said it has been a good step but unscrupulous dealers, known as "carpetbaggers", are unlikely to sign up to it.

The National Association for the Visual Arts has called on the government to make the code mandatory, with severe penalties for offenders.

The government said it will review the code's efficacy in two years' time.