Attorney-General George Brandis insists donations reform has nothing to do with Labor's Sam Dastyari allowing Chinese interests to pay his personal debts.
Liberal backbencher Cory Bernardi has joined Labor's call for donation reform, including a ban on foreign donations.
He says donations should only be accepted from voters on the electoral roll.
It comes as Senator Dastyari, manager of opposition business in the Senate, faces mounting pressure to step aside following revelations he made public comments about the South China Sea contrary to Labor's position on the dispute.
"There is a general acknowledgement that there needs to be some donation reforms for political parties," Senator Bernardi told ABC radio on Tuesday.
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But Senator Brandis says that's a different conversation, given what Senator Dastyari received was a gift, not a donation, and gifts are already subject to extensive rules.
"I can understand why the Labor Party is desperately trying to change the conversation - I'm not going to change the subject," he told ABC radio.
"People are entitled to know why it was that Senator Dastyari was in effect in the pay of a foreign-controlled entity."
Meanwhile, Senator Bernardi has questioned where the usually media-friendly Senator Dastyari has been.
"The Labor Party needs to release him from witness protection."
Shadow attorney-general Mark Dreyfus rejected calls for Senator Dastyari who is manager of opposition business in the Senate, to step aside, insisting he made full disclosure, had broken no law and had donated the amount to charity.
He said foreign donations could be banned next week if the Liberal Party supported it.
"What we've got here is a desperate Liberal government trying to distract attention ... from their own near complete lack of an agenda," he told ABC radio.
"It's mud that's been thrown by the Liberal Party."
The coalition should instead look at its own books, such as Chinese donations Foreign Minister Julie Bishop secured for West Australian branch of the Liberal Party, he said.
Shadow special minister of state Stephen Conroy said by the prime minister's standards, his own foreign minister has been compromised by foreign donations.
"Ms Bishop accepted an iPad, airfares and accommodation from a Chinese-owned company, and her WA division of the Liberal Party pocketed more than $500,000 from donors with links to the Chinese government," he said.
"Ms Bishop isn't some junior senator - she is the foreign minister of the country and deputy leader of the Liberal party."
Greens leader Richard Di Natale says ministers have been sacked for a lot less, but stopped short of calling for Senator Dastyari's head, insisting it was a question for Labor
He called on both major parties to sort out the donations mess, arguing foreign and corporate donations were "corrupting" decision-making.
The Greens want a ban on foreign, corporate and third-party donations, calling for publicly-funded election campaigns.
Senator Di Natale said the government's outrage over Senator Dastyari was hypocrisy.
"This nonsense that it's ok for foreign interests to be giving hundreds of thousands of dollars to a political party - that's ok but it's not ok for foreign entities to pay a bill," he told ABC radio.
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