The retired gardener was reluctant to comment when approached at his bail address in Epsom.
"To get more money I suppose," was his response when asked why he stole the identities of the children.
Questioned further about how the families of the young boys would feel, Diedrichs said: "I didn't really think about it, to be honest."
The use of stolen identities of dead children is similar to how former Act MP David Garrett obtained a false passport.
Inspired by spy novel The Day of the Jackal, Garrett visited a cemetery in 1984 and found the gravestone of a 2-year-old boy, whose birthdate was close to his own.
He copied the details, obtained the child's birth certificate, filled out a passport application and photographed himself in disguise.
Garrett was arrested in 2005 - before he entered Parliament - and resigned in disgrace in September 2010 when suppression orders were lifted to reveal his conviction for passport forgery.
The identity theft was described in court documents as "akin to stealing from the grave" by the dead child's mother.
Mike Smith, head of the Ministry of Social Development fraud unit, was pleased Diedrichs had admitted his guilt and conceded that what he did was "wrong and totally unacceptable". He said the case was "rare and cannot happen today".
"To commit an offence of this nature would require a person to go to extraordinary lengths in creating and carrying out a calculated plan which was methodical, determined and deliberate.
"We are constantly reviewing our controls and they are considerably stronger today than 20 years ago."
He said the ministry had worked with the police asset recovery team to freeze just over $350,000 in cash and assets from Diedrichs. The money is the subject of ongoing court proceedings.
Benefit fraud cost taxpayers a record $22.6 million last year and nine social welfare staff were sacked for ripping off the system.
