Scott Morrison says Australia will aim to provide a calming influence on rising tensions between the United States and China in the South China Sea.
The prime minister said he wanted to see stability and prosperity in the region continue, after reports a Chinese navy destroyer launched a challenge to a US warship.
"We're cool heads in this situation," Mr Morrison told 6PR on Wednesday.
"Times of uncertainty are exactly that and it's our job to work with everybody to reduce that uncertainty - that's what we're doing."
The US Navy said one of its ships almost collided with a Chinese warship in the South China Sea, in an "unsafe and unprofessional manoeuvre".
The Chinese defence ministry says it opposes the US warship's entry into the waters "around China's islands and reefs".
Mr Morrison says Australia has strong relationships with both countries, vowing to work for the best strategic outcomes for the national interest.
"The prosperity of our region has been a major boon for Australia and we want to see that continue."
Defence Minister Christopher Pyne has warned against aggression in the region, labelling the dispute in the South China Sea concerning.
"We would view any use of intimidation or aggressive tactics as destabilising and potentially dangerous," he told The Australian.
Relations between the US and China have deteriorated recently over an escalating trade dispute and military issues.
