The defence department is investigating whether Australian pilots have been lured by large pay cheques to train Chinese military personnel.
Opposition Leader Peter Dutton is calling on the Albanese government to introduce laws that would ban current and retired Australian troops from passing on sensitive information.
Defence Minister Richard Marles has ordered his department to probe the possibility of Australian personnel working in China, following reports of British personnel being involved in training.
"I would be deeply shocked and disturbed to hear that there were personnel who were being lured by a pay check from a foreign state above serving their own country," Mr Marles said in a statement.
"I have asked the department to investigate these claims and come back to my office with clear advice on this matter.
"When our ADF personnel sign up to the defence force, they do so to serve their country and we are deeply grateful of that."
Mr Dutton, the former defence minister, said he found the reports "alarming" and that the government would have his backing for legislation to deal with the issue.
"If there is a hole in the legislation now, the coalition will support a change which will tighten it up because in the current environment ... we can't allow our secrets and our methodologies to be handed over to another country, and particularly not to China under President Xi," he said.
Mr Dutton said new laws should make it an offence for current and former defence force personnel to "disseminate information" to countries where they were not authorised to do so.
Former British military pilots have been warned not to teach the Chinese armed forces how to defeat Western warplanes, with a proposed law change to stop them.
The UK's Ministry of Defence has issued an intelligence alert warning its pilots against taking part.
"We are taking decisive steps to stop Chinese recruitment schemes attempting to headhunt serving and former UK armed forces pilots to train People's Liberation Army personnel in the People's Republic of China," a spokesman said.
