A lack of regulation at Queensland's fertility clinics may have led to a donor fathering hundreds of children, sparking incest fears.
An investigation into the state's assisted reproductive technology providers has also revealed claims of a couple receiving the wrong sperm.
Health Minister Shannon Fentiman said on Wednesday she was shocked by the Office of the Health Ombudsman's damning findings.
Ms Fentiman had requested the investigation following more than 200 complaints.
It sparked the introduction of new legislation currently before parliament to regulate providers and establish a donor conception information register.
"We need to make sure that our laws keep up with technology," Ms Fentiman told reporters.
Health ombudsman Dr Lynne Coulson Barr said in the report the probe had unearthed "significant systemic issues" in providers' practices.
It also identified "gaps and risks" in the current self-regulatory regime in Queensland.
A key finding was the substandard record keeping of the number of sperm donations from a single man, with fears he may have fathered hundreds of children.
In one case, a woman reported the sperm donor she used had donated on more than 200 occasions at the same clinic, raising concerns about how many siblings her child may unknowingly have.
When investigating a number of clinics, the probe was unable to establish the number of families created or how many siblings a child may have from the same donor.
It said the excessive recurrent use of sperm donations in a number of fertility treatments could pose the risk of donor-conceived individuals "inadvertently having a sexual relationship" with a blood relative.
The report also identified problems with the collection and storage of genetic material after complaints of the misplacement of sperm donations, wrong embryos used during transfers, and mixing eggs with sperm from incorrect donors.
A couple underwent a treatment to have three children, intending for all to be related using a single sperm donor.
But following private genetic testing, they found out the youngest two were not related to the eldest child.
One of the children also had significant disabilities but the provider maintained the same donor sperm was used for all of the kids.
"The impact on consumers and the donor-conceived children in cases of gamete mix-ups cannot be underestimated," the report found.
A number of complaints were also made by families who used the same donor sperm and their children developed significant medical issues.
They claim the clinic failed to inform them or other potential families of the donor's medical risk.
"I was assured repeatedly that any health issues, no matter how small in the donor or other children would be shared with me as soon as it was reported to the clinic," one family told the probe.
"This turned out to be false."
The ombudsman recommended all stored donor material - eggs, sperm and embryos - that does not meet identification requirements be destroyed.
The new laws before parliament will place restrictions on how many times a person's sample can be used.
Some families who intended to have another child from the same donor will no longer be able to under the new legislation.
Ms Fentiman said the government would work with those families on a path forwards.
"We don't want people who are donor-conceived to have all of these siblings and not know about it," she said.
Other ombudsman recommendations were legislation to standardise documents and processes for consistent record keeping and establishing a central donor register for children to access information.
Providers should also be obligated to disclose a donor's medical history risks to families prior to fertility treatments beginning, the report said.
