Bendigo Family and Financial Services' Jenny Elvey said client demand for emergency relief food supplies has increased in recent weeks, since the supplement reduced from $550 to $250 in late September.

"A lot of people are falling through the cracks and for those on JobSeeker payments, the thought of going back to the base rate in a few months creates anxiety," Ms Elvey said.

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"The supplement helped people survive when the pandemic led to increased costs including food and electricity from more family members being at home all day."

Prime Minister Scott Morrison announced the Coronavirus Supplement has been extended to the end of March, but at a reduced rate.

"As the economy starts to move back and confidence lifts and jobs come back, we cannot allow our safety net to hold people back," Mr Morrison said.

"We want them to be able to bounce back and get back into the jobs that are increasingly becoming available."

The supplement, currently valued at $250, is a payment made in addition to the base JobSeeker rate.

In announcing the extension, the government said the $250 payment would be reduced to $150 during the first three months of 2021.

More than 10,000 people in the Bendigo electorate were in receipt of JobSeeker or Youth Allowance payments in September, compared to about 6,000 recipients in February.

Anglicare Victoria's regional director Francis Lynch said he was pleased that JobSeeker support would be extended, but is disappointed the rate will be reduced.

"The payment has provided a lifeline for those in our community on the lowest incomes," Mr Lynch said.

"We've had clients accessing our services that have never needed to before, and in the lead up to Christmas we expected more people will be needing our support because they're just not able to make ends meet this year."

Uniting Victoria Tasmania chief executive Bronwyn Pike said the supplement has provided more than one million Victorian families with a lifeline during the coronavirus pandemic.

"We're extremely concerned about what will happen when the supplement ends in March and millions of families are plunged back into poverty having to rely on the previous JobSeeker payment of just $40 a day," Ms Pike said.

Under the new payment arrangements, from January, a single JobSeeker recipient will receive a fortnightly payment of $715.70, which includes the $150 Coronavirus Supplement and $565.70 JobSeeker payment.

Bendigo MP Lisa Chesters has advocated for a permanent raise to the JobSeeker rate and said a cut to the supplement is hurting households trying to survive on the smallest of incomes.

"The extension of the Coronavirus Supplement to March at this much lower rate does not relieve anxiety for jobseekers heading into the most expensive time of year," Ms Chesters said.

"The base rate actually prevents people from finding work and forces recipients to live in poverty, we can't go back to that."

The extension is expected to cost $3.2 billion over the three months.

The income-free threshold, which allows welfare recipients to earn $300 per fortnight without having their payments docked, is also being extended.

-With AAP