The Norfolk Island Gaming Authority exposed Australia's thoroughbred industry to global ridicule last year when it granted a national licence to BetHQ – closely linked to the world's biggest illegal bookmaker, Citibet.

The government subsequently ordered the authority to stop issuing new licences while audit firm Centium conducted a review. But now Territories Minister Fiona Nash says the authority will be scrapped altogether.

"Gambling in Australia must be carefully regulated to ensure the integrity of our sport and to protect consumers," Senator Nash said.

"Centium's report made it abundantly clear that the authority is beyond redemption and that these problems cannot be resolved satisfactorily. As a result, I am entirely confident that closing the authority is the right thing to do."

Bookmakers with licences granted by Norfolk Island will have six months to seek new approval from other Australian jurisdictions.

But firms such as BetHQ won't find any other states or territories willing to issue them a licence, effectively ending their local operations.

The Centium report says the authority had failed to fulfil its regulatory role and had been effectively "captured" by the industry.

The authority was even honoured at the online wagering industry's night of nights, the EGR Australia Awards, as the best "professional services partner".

"An authority should not be viewed as a partner; its role is that of a regulator," the report said.

The authority has operated without transparency or basic integrity controls and was highly vulnerable to fraud and corruption, the report found.

The body had failed to perform a proper analysis of licence application assessments or apply rigorous standards of probity.

The review pointed to obvious conflicts of interest, including when the authority asked one of its licensees to conduct a compliance check of its operations.

The authority was also the first to give British betting giant Ladbrokes a foothold in Australia, although it has since moved its operations to the Northern Territory – which also offers cheap licences and generous tax arrangements.

Norfolk Island has traditionally offered the best tax rate in the country for online gambling agencies, capping it at $300,000 a year per licence. Critics have labelled the island and the NT "virtual gambling tax havens".

Citibet is based in the Philippines but bets without proper agreements on horses and sport around the world, raising race-fixing concerns.

When the links between Citibet and BetHQ emerged earlier this year Racing Australia branded Norfolk Island's decision one of "reckless incompetence".

But on its website the authority says its "regulatory and supervisory approach meets the very highest of international standards".

"The NIGA is a streamlined and efficient organisation that provides for rapid approvals to licence applications," it says.

Senator Nash says the government will cover the small shortfall in revenue as a result of the authority's closure.