But the state government, which will cease funding the army-run Reintegration for Ex-offenders program from July 1, said the new system offered more housing options.

REO, which supporters say cuts re-offending rates, was set up in 2011 to address a lack of housing for ex-prisoners, parolees and people on remand.

The scheme also links clients with Community Corrections, the Parole Board and Housing Tasmania "to dovetail all services and ensure positive outcomes".

But the new arrangement will see ex-prisoners referred to Housing Connect, the one-stop shop servicing the wider Tasmanian population.

Critics say the lack of a specialist service for ex-prisoners is concerning.

"The reality is that many ex-offenders will be excluded from the new system and will face significant disadvantage when they exit the justice system," the Salvation Army's REO manager Don McCrae said.

Inmates need to secure housing before they are granted parole.

Mr McCrae said this would not be possible under the new process.

Prisoner advocate Greg Barns said it was bound to lead to increased crime and a hefty bill for taxpayers if parolees were force to languish in prison.

"[REO] itself has demonstrated for a long time now to lower recidivism rates," he said.

"The first two or two or three months out of prison are critical for prisoners re-establishing themselves in the community and they can only do that if they have stable accommodation."

Human Services Minister Jacquie Petrsuma said the new system was a more "equitable and fair approach" because it prioritised those most in need not by "who they are".

"Housing Connect offers more housing options than what can be offered by a narrowly targeted program," she said.

"Ex-offenders will continue to be supported into housing options, based on their level of need. In addition the Minister for Corrections [Vanessa Goodwin] is seeking advice on the best ways to further support ex-offenders trying to re-integrate into the community."