Probe into Vic watchdog powers

Victoria's Supreme Court will decide whether the state ombudsman has the power to investigate allegations Labor MPs rorted taxpayer-funded allowances.

Ombudsman Deborah Glass asked the court to clarify her powers in February after she was asked by the Upper House to investigate Labor's use of electoral staff to run its last state election campaign.

This was prompted by an internal report which found Labor's use of electorate office funds to pay 26 staff for two days a week of campaigning at the 2014 election would not "pass the pub test" among voters.

Special Minister of State Gavin Jennings then wrote to Ms Glass to say her office didn't have the power to do so.

Lawyers acting on behalf of Victoria's attorney-general told the Supreme Court on Monday there was confusion over section 16 of The Ombudsman Act.

That Act, says parliament, can refer any matter other than a matter pursuant to judicial proceedings to the ombudsman for further investigation.

The hearing, before Justice Antony Cavanough, will continue on Tuesday.