The Government's privacy watchdog wants answers from bureaucrats who provided a Centrelink client's personal details to a journalist in a bid to counter her public criticisms.
Public servants have also told ABC News they are concerned the disclosure could inadvertently breach the privacy undertakings of other departments who share their data with Department of Human Services (DHS).
DHS told ABC News it would continue to release personal information to correct media statements made by welfare recipients about the scheme.
"Unfounded allegations unnecessarily undermine confidence and take staff away from dealing with other claims," a DHS spokesman said.
"We will continue to correct the record on such occasions."
The statements have concerned Privacy Commissioner Timothy Pilgrim, who has encouraged anyone concerned about the security of their personal information to contact his office.
"My office is making inquiries with the Department of Human Services," he said.
"An agency may only disclose an individual's personal information in a limited range of circumstances."
Ms Fox told ABC News the disclosure was extremely distressing and she had lodged a formal complaint with the department.
The department said it was authorised to release the information according to Section 202 of the Social Security Act 1999, and the Section 162 of the A New Tax System Family Administration Act 1999.
Former NSW deputy privacy commissioner Anna Johnston said she expected Centrelink bureaucrats to be more cautious with personal information.
Ms Johnston, who is now a privacy consultant, said Ms Fox's complaint to Centrelink could test privacy law.
"Our privacy laws do allow for shades of grey, with tests like 'what would be within the person's reasonable expectations?'" she said.
"If this becomes a litigated privacy complaint, it would certainly raise that 'what is reasonable?' question and potentially open up discussion of the appropriate limits to senior bureaucrats' discretion to disclose personal information about clients to the media."
Peter Sutherland, a social security law expert at Australian National University, said the disclosure appeared to be unprecedented.
"I am not aware of any previous occasion where a disclosure of this nature has been made under this provision of the social security law," he said.
"It is arguable whether the department is authorised by the statute as they claim.
"However, only the courts could determine the lawfulness or otherwise of their action, possible through a test case by Constitutional writ in the Federal Court."