Australia's prime minister has cautioned against "Vegemite watch" amid concerns the spread is being used to brew illegal alcohol.

The Marmite-like yeast extract was described as a "precursor to misery" by Indigenous Affairs Minister Nigel Scullion.

Bathtubs are reportedly being used in some cases to ferment dozens of jars and turn it into alcohol to get around local booze bans.

Alcohol is illegal in some indigenous communities but the yeast in Vegemite can be fermented to make moonshine.

"Addiction of any type is a concern but communities, especially where alcohol is banned, must work to ensure home brewing of this type does not occur," said Mr Sculllion.

"Businesses in these communities also have a responsibility to report any purchase that may raise their own suspicions."

He claimed some children were missing school after getting drunk on the homemade booze.

But Australian PM Tony Abbott said spying on customers and tipping off police to suspicious Vegemite purchases was a step too far.

He told reporters: "The last thing I want to do is have a Vegemite watch.

"Vegemite, quite properly, is for most people a reasonably nutritious spread on your morning toast or on your sandwiches."

Vegemite and its UK cousin Marmite are both yeast extracts, a by-product of brewing beer, with a long-running debate among toast aficionados in the two countries over which tastes better.