China and Australia have close business and economic ties, but Beijing is deeply suspicious of Canberra's defense relationship with Washington.
Quoting an unidentified official with "China's national security department", the Global Times tabloid said the Australian government was spying on China and monitoring Chinese people in Australia.
"The national security department staffer said Australia's agents in disguise would get close to Chinese people working or living overseas to collect information or even encourage them to subvert China," the report said.
"Meanwhile, in the name of avoiding 'Chinese spy threats', Australian intelligence operatives are closely monitoring Chinese people and the Chinese Embassy in Australia," it said.
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The report said "many" Chinese people had been interviewed or harassed and were being required to give information about Chinese communities and the Chinese embassy.
"Some of the Chinese people were even sent back to China to gather information," it said.
Chinese authorities have found "many eavesdropping devices at the embassy", which had forced the government to renovate it, the employee told the newspaper, which is published by the official People's Daily.
It was not possible to reach China's Ministry of State Security for comment as the ministry has no publicly available telephone number or website.
Neither the Australian foreign minister's office nor the Department of Foreign Affairs and Trade responded immediately to a request for comment about the Global Times article.
