Illegal backpacker hostels offering Third World-style accommodation are putting lives at risk and costing the state economy up to $60 million, the Government has been warned.

Waverley mayor Peter Moscatt sounded the warning about substandard accommodation as waves of tourists start flooding Bondi, Sydney's most popular beach, in time for Christmas.

"It's Third World conditions," Mr Moscatt said. "Someone is going to die in there. But that is what people are accepting as the norm when they come to Australia."

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