It is the second major Agriculture Department investigation since strict animal welfare rules were implemented after last year's cattle controversy in Indonesia.

Animals Australia complained after its Kuwaiti investigator found exported sheep were being sold in non-approved markets and killed in makeshift abattoirs, where slaughtermen ignored international guidelines.

The case has raised concerns from activists, Labor backbenchers, the Greens and independents that the new rules rely too much on industry self-regulation.

Since last year exporters have had to comply with rules that assure high welfare standards from farm to slaughter. Animals are tracked so officials know they are slaughtered in approved facilities as well as preventing on-selling of sheep into non-approved abattoirs and feedlots.

Exporters are also required to have supply chains independently audited, and the audit given to the department.

Lyn White, the Animals Australia lead campaigner, says hundreds of Australian sheep were sold at the non-approved Al Rai market in Kuwait City last month. She uncovered cruelty at the same market in 2010.

''With the buyer and family crowded into the room to observe, the handling of this sheep included dragging it over and placing it next to and then on top of other just slaughtered sheep (when still moving) on the cement floor to prepare it for the throat cut,'' Ms White said.

She said the slaughterman used a knife that was too short, with a fast sawing action, not the quick ''sticking'' of the neck required by international rules.

Ms White said the offences were ''critical non-compliances'' that can lead to criminal sanctions. That hundreds of Australian sheep were seen at four different sites on two days showed a ''systematic and deliberate breach''.

''The government will no doubt again say that this shows the system is working, but how can that be the case when breaches are only being reported by Animals Australia,'' she said.

Emanuel Exports and its sister company International Livestock Exports are the only two businesses now exporting to Kuwait. Emanuel Exports would not comment.

Earlier this year two exporters were found to have breached the rules in Indonesia.

The Labor backbencher Kelvin Thomson said he would raise questions about the case when Parliament resumes next week.

''The selling and slaughter of animals outside approved supply chains is a serious breach of the new system and exporters who allow it should have their export licence taken off them,'' Mr Thomson said.

The Tasmanian independent MP Andrew Wilkie will introduce a bill to Parliament on Monday to mandate pre-slaughter stunning of all Australian animals overseas.