"Senior Labor figures" quoted in The Australian raised concerns about Senator Payman's Afghan citizenship after she quit the party and refused to hand the seat back, instead moving to the crossbench.
Senator Payman declared her citizenship before the election and was supported by Labor as a candidate and has declared she made representations to renounce but couldn't go further because of the Taliban government.
Senator Fatima Payman (centre) sits with Senator David Pocock after crossing the floor. (Lukas Coch/AAP PHOTOS)
She declared she had received legal advice affirming that she was eligible to contest as a candidate due to the "impossibility" of progressing her application after approaching the embassy.
Independent senator David Pocock - who himself had to deal with dual citizenship issues before running - called out the politicking.
"Raising questions about her eligibility under section 44 by people from the same party who took responsibility for ensuring the eligibility of her candidacy and now are too cowardly to put their name to the allegations is such grubby politics," he told AAP.
"I hope people will see this backgrounding and smear campaign for what it is."
Constitutional lawyer Anne Twomey said it was unlikely the case would make it to the High Court as the 40-day challenge period had expired and it was up to the Senate to refer the case.
"The Labor Party would have some difficulty doing that as they took the view when they endorsed her as a candidate so they would have to reverse that," she told AAP.
"Basically, it's extremely unlikely it would go to court."
Senator Fatima Payman says she received legal advice she was eligible to contest as a candidate. (Lukas Coch/AAP PHOTOS)
But if it did, there was some uncertainty about how the court would rule given uncertainty about the situation in Afghanistan, she said.
While it was legal to run if there was no way to relinquish citizenship, it was "bad luck" if the process was unduly long and Senator Payman's case could sit somewhere in the middle, the lawyer said, adding she had good grounds to argue.
Finance Minister Katy Gallagher said she didn't know where the story had come from given the extensive vetting procedures for Labor candidates.
Prime Minister Anthony Albanese said he didn't have concerns when asked about her citizenship, saying it was a matter for her.
But he put pressure on Senator Payman to hand the seat back, saying voters wanted to elect a Labor government as he pointed to her 1600 below-the-line votes.
The rebuke came after Senator Payman said she was still representing rank and file members and unionists who supported her stance on Palestine.
Senator Payman said she had raised the recognition of Palestine, which Labor has affirmed to do but with no timeline and some caveats, with the prime minister and senior ministers but was unable to secure change.
Timely recognition was needed to put pressure on Israel to "cease its onslaught" in Gaza and was something she told political leaders she couldn't compromise on, she said.
Senator Katy Gallagher disagrees with the idea that more MPs should be allowed to cross the floor. (Mick Tsikas/AAP PHOTOS)
Being the daughter of a refugee from a war-torn country, the devastation and trauma she and her family experienced shaped her perspective, she said.
Contemporary Australia is full of diverse communities and Labor must celebrate dissenting voices if it wants to represent them, the senator said, adding there should be the possibility of more conscience votes.
"What Australia is looking like today is very different to what it was 20, 30 years ago," she told ABC radio on Friday.
Senator Gallagher said there were plenty of forums within Labor to debate issues, and she disagreed with the idea that more MPs should be allowed to cross the floor.
"We argue, we agree, and ultimately we land on a position and that is how, us as individuals, stick together with a caucus position," she said.
