Some top-selling cereals that score four out of five health stars would plummet to just 1.5 stars if added sugars are factored in, Choice says.

Choice is demanding a major change to Australia's star rating system for food, saying consumers are being denied the full picture when it comes to added sugar.

The national consumer advocacy group says there's a serious flaw in the current system, introduced in 2014 under the Abbott government, which is meant to make it easy for shoppers to make healthier choices at a glance.

Most people would be familiar with the star rating featured on the packets of many common manufactured foods, from cereals and snack bars to yoghurt and ready-made meals.

Products are assessed and given a rating from half-a-star, up to five. More stars mean more beneficial nutrients and fewer of those considered risky.

But Choice has an issue with the existing algorithm used to assess sugar content because it makes no distinction between natural and added sugar.

This means consumers are given a false sense of whether a product is healthy or not, Choice food policy expert Linda Przhedetsky says.

Choice has released its own algorithm that further penalises foods which are heavy in added sugar. The results are dramatic, especially for some top-selling cereals.

Under Choice's tougher algorithm, Kellogg's Nutri-Grain and Nestle's Milo cereal lost 2.5 of their four stars, putting them firmly in the camp of not-so-healthy.

Other products increased their star rating, gaining extra points for drawing their sweetness from natural sources.

Choice supports the star rating system, which is currently under review, but says it's clear changes are needed.

The group also wants the voluntary star rating system made mandatory for all food and drinks.

Manufacturers must be required to list added sugars as a proportion of total sugars, it says, in the same way saturated fats must be listed as a proportion of total fats.

"It's about making sure that people have transparency and all the information they need in order to be able to make informed choices about the food and drinks they buy," Ms Przhedetsky says.

"Currently, we don't feel that manufacturers are required to be transparent about what they are putting in our food."

Dietitians Association of Australia spokesman Alan Barclay, who is a dietitian himself, says the existing system works reasonably well, and the review process should lead to improvements.

"It's not perfect but nothing is, and you shouldn't let perfect be the enemy of the good," he told AAP on Tuesday.

He backed mandatory labelling for added sugar to make the star rating system more robust and enforceable.

World Health Organisation guidelines call added sugar "free sugar" and says it should account for less than 10 per cent of the calories adults and children consume each day, to ward off weight gain, obesity and tooth decay.

It has not set guidelines for natural sugars found in fruit, vegetables and milk because there's no reported evidence they have adverse effects.

Nestle says it has progressively improved its Milo cereal product, doubling whole grain and fibre, cutting saturated fat and sodium, and reducing sugar by 12 per cent.

"People choose chocolate-flavoured cereals for taste, and there comes a point where you can't reduce sugar without significantly affecting the flavour, however it may still be possible to make other changes that improve its overall nutrition," the company said in a statement.