The Turnbull government is considering Sydney, Townsville or the Sunshine Coast as the Australian link point for undersea high speed communications cables for Papua New Guinea and the Solomon Islands.
The project will connect the two Pacific island countries with Australia via fibre optic cables more than 4000 kilometres long to improve internet affordability and reliability.
Australia had been wary of Chinese company Huawei lining up to build the Solomon Island's cables and was keen to elbow it out of the way because of strategic concerns.
Department of Foreign Affairs and Trade official Bernard Unkles said Australia would be picking up two-thirds of the cost of the project with the two Pacific countries to chip in the rest.
The Australian contribution will come from the foreign aid budget, Mr Unkles said.
The three governments are expected to sign a funding deal in coming weeks.
PNG and the Solomon Islands will own the infrastructure and will access the revenue generated.
Mr Unkles said Townsville, Sydney and the Sunshine Coast were the three Australian connection points under consideration.
All three would have minimal environmental impact with Sydney considered the lowest risk and cheapest option, he said.
Mr Unkles declined to give a ballpark estimate of the three options because of commercial in confidence reasons.
"All options have their pros and cons," he told the Australia-Papua New Guinea business forum in Brisbane on Tuesday.
He said Townsville was actually more expensive despite requiring a shorter cable because terrestrial backhaul would have to be leased.
The cables will be able to carry up to 10 terabytes per second and are expected to be completed by the end of 2019.
The project was important because internet connectivity was a significant driver of economic growth and would help reduce poverty, Mr Unkles said.
Prime Minister Malcolm Turnbull and his PNG counterpart Peter O'Neill discussed the project on the sidelines of the Asia Pacific Economic Cooperation leaders summit in Vietnam last year.
