The federal government has confirmed a Chinese spy ship spent three weeks off the coast of Australia in August and September.
The vessel transited through the Torres Strait and sailed as far down as Sydney.
Prime Minister Scott Morrison said the ship was in waters off the Australian coast and not in territorial waters, adding that it was legally allowed to be there just as Australia is allowed to sail through the South China Sea.
"We were keeping an eye on them just as they were keeping an eye on us," he told reporters on Friday.
A photo released by the Department of Defence shows the HMAS Supply monitoring the Chinese ship.
Home Affairs Minister Karen Andrews said Australia had closely monitored the vessel as part of routine border protection matters.
Treasurer Josh Frydenberg reiterated that Australia took the necessary precautions and lauded the new AUKUS trilateral security arrangement with the United States and Britain as vital to national security.
"No surprises here that everyone wants to get the opportunity to get that little bit of extra information if they can," he told the Seven Network.
"We knew they were there, we continued to do our business ... but it also underlines the challenging strategic environment that Australia is in.
"We've entered into strategic partnerships like AUKUS with two-valued, trusted partners who are going to share the most up-to-date technology with our defence forces and with our security personnel."
Mr Morrison said the significant security issues in the region warranted strong Australian action and reaffirmed the government's need to acquire nuclear-propelled submarines.
"Australia has to be able to stand up and that requires great strength," he said.
"The presence of the Chinese navy highlights to Australians that there is a very serious situation in the Indo-Pacific.
"No one can be complacent about the situation."
China has previously sent military ships to monitor defence training exercises, like Talisman Sabre off the east coast in July, and three warships sailed into Sydney Harbour unannounced on the eve of the Tiananmen Square massacre anniversary in 2019.
Dominic Giannini AAP with The Project