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In the current project I am working on, I found that client has created internal users for partner and any partner can directly login to salesforce org and has access to almost every object and data.

Is it a correct approach to create Internal users for partners? Instead there must be a Partner community for partners and partners should be allowed to access data only through community?

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No, it's not a best way to open up a partner to internal salesforce org. I would prefer salesforce community:

  1. They will consume salesforce license which is costly and partner community login license is cheaper.
  2. Data security - by making it only relevant data available in community.
  3. A customized company oriented user experience and theme using community - Mobile Friendly.
  4. Easy multi-lingual translation.

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