On Tuesday, a court in Croatia ordered the issue of an international arrest warrant for Dragan Vasiljkovic and Justice Minister Vesna Skare-Ozbolt said the government would seek his extradition from Australia.
But Australian officials say they must receive a formal extradition request before they can detain a person under an international arrest warrant.
"The issue of an arrest warrant does not alone enable Australia to arrest and consequently extradite another person," a spokesman for Justice Minister Chris Ellison said.
The Croatian government suspects Vasiljkovic of being responsible for the torture and killing of Croatian civilians and prisoners of war in the rebel Serb stronghold of Knin in 1991 as well as in the southern village of Bruska in 1993.
The crimes were allegedly committed by members of a Belgrade-backed paramilitary unit known as The Alfa, which was allegedly under Vasiljkovic's command.
A spokeswoman for the Australian Federal Police (AFP) said they had received no orders in relation to the arrest warrant against Vasiljkovic, alias "Captain Dragan."
Vasiljkovic, who holds passports from both Australia and Serbia-Montenegro, left Australia during the Croatian and Bosnian wars of the early 1990s to command Serb paramilitary units.
He returned to live in Australia in December 2004 and has denied the accusations against him, although he has admitted to an Australian newspaper to commanding a paramilitary unit during the Balkan wars.