A man was arrested over the killing of a woman whose skeletal remains were found in an Australian forest 750 miles from where her daughter's body was discovered dumped in a suitcase.

The arrest came a week after police identified the remains of Karlie Jade Pearce-Stevenson, 20, and her two-year-old daughter Khandalyce Pearce and seven years after police say the pair were killed at different times and in different locations.

Fraudsters used the mother's mobile phone for three years after her death to make family and friends believe she was still alive, police said.

They convinced Ms Pearce-Stevenson's mother to deposit money into the dead woman's bank account, which continued to receive government benefits, South Australia Police Detective Superintendent Des Bray said earlier this week.

Ms Pearce-Stevenson's credit card was used in several cities, with the final transaction in March 2012.

Daniel Holdom, 41, appeared briefly in Maitland Local Court, about 95 miles north of Sydney, on a charge of murder over the killing of Ms Pearce-Stevenson.

He did not apply for bail and it was formally refused by magistrate John Chicken.

Holdom has not been charged in relation to the toddler's killing. Police said the investigation into her death was continuing.

New South Wales Police Detective Superintendent Mick Willing said police believe Ms Pearce-Stevenson was killed on December 14 or 15, 2008. Her daughter was killed sometime later, he said.

He declined to say whether police believe Holdom had any relationship with Ms Pearce-Stevenson.

Police believe several people were involved in the double killing, the theft of the mother's identity and related frauds over several years.

Ms Pearce-Stevenson's bones were found in 2010 in the Belanglo State Forest, about 90 miles south of Sydney.

The forest was the infamous dumping ground for victims of Australia's most notorious serial killer, Ivan Milat, who was convicted in 1996 of murdering seven backpackers.

Police suspect Ms Pearce-Stevenson's killer left her body in the forest to make it look like she was a victim of Milat's.

Khandalyce's body was discovered in July after a driver spotted the suitcase dumped on the side of a road near the small South Australia town of Wynarka.

The identities of both bodies had baffled police in two states until they received a tip on a crime prevention hotline three weeks ago.

The caller suggested the girl in the suitcase might be Khandalyce, who left with her single mother from their Outback home town of Alice Springs in 2008 to travel.

DNA tests confirmed the remains were indeed Khandalyce's. Police then used blood samples from the medical records of Ms Pearce-Stevenson to identify her remains.

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