The Australian Security Intelligence Organisation, ASIO, says Australia's political parties need to be more careful about where they get their donations.
It says it is concerned about possible ties between two billionaire donors and the Chinese Communist Party.
A joint Fairfax-ABC investigation reports fears over the influence of China on the Australian political landscape are increasing.
And the executive director of the Australian Strategic Policy Institute in Canberra, Peter Jennings, has told the ABC the implications are worrying.
"I think that this type of, frankly, naked (blatant) influence-buying is something which is damaging to Australia's political system. I would far rather have a regime in place whereby we, the taxpayer, pay for the cost of our elections than relying on parties to get donations from foreign sources, wherever they may come from. But, you know, notably, those foreign sources are primarily linked to Chinese business."
ASIO has reportedly briefed Prime Minister Malcolm Turnbull, former prime minister Tony Abbott and Opposition Leader Bill Shorten individually on the issue.
But despite warnings as far back as 2015, both the Liberals and Labor have reportedly accepted further donations since then.
The head of the Australian National University's National Security College, Professor Rory Medcalf, has told the ABC the situation is being monitored but nothing more.
"We don't know whether the donations are somehow driven, or centrally encouraged, by the Chinese Communist Party or whether, in fact, you've got enthusiastic individuals freelancing to make donations that they think will resonate well when they report back to China, or if they report back to China that these donations were made and that there's a change taking place in the Australian political discourse. It's fair to say that agencies like ASIO are really quite alive and alert to these issues. The challenge for them is that their mandate is essentially to monitor and to report to government what's happening. They don't have a mandate. And it's not clear who within the Australian system has a mandate to act on this information."
The ABC reports, after being informed of the findings, Attorney-General George Brandis said Prime Minister Malcolm Turnbull has launched a separate investigation.
It is reportedly looking at Australia's laws around espionage and foreign interference.
Mr Brandis called it "a problem of the highest order" and is looking at bringing in new legislation.
The chairman of the United States' Homeland Security Committee, Mike McCaul, says he has seen direct evidence of China's efforts to affect other countries' politics.
The Republican Congressman has told the ABC Australia needs to change its laws as soon as possible.
"Well, you know, in the United States, we prohibit that expressly. I think there's a reason for that. We don't want the influence of foreign money in our elections and foreign governments to influence our elections. I think that's a wise policy. Quite frankly, I was a bit surprised that Australia does allow foreign contributions. And, if you look at the numbers which I was privy to, a lot of these donations are coming from China. China has a very strong influence in the region. They want to influence Australia. They want a stronger presence in Australia. And what better way to do that than to influence political figures through foreign contributions?"
Australia's Labor senator Sam Dastyari was forced to resign from the frontbench in late 2016 over such issues.
He admitted asking a donor with links to the Chinese government to repay a personal debt for him.
The latest investigation has raised further questions over what he agreed to do in return for the promised funds.
The Assistant Minister to the Prime Minister, Angus Taylor, has told Sky News that, if true, Senator Dastyari has a lot to answer for.
"Donations aren't illegal, but I tell you what, if a donation is coming with undue influence in return, then that's clearly a problem. And nowhere is that worse (than) when it's a foreign government involved. I don't know whether that's the case here, I haven't seen the details, but this is why we should and do have a transparent donations system so these things can be tracked and so that we know when there has been undue influence."
Deputy Prime Minister Barnaby Joyce says he is concerned about the revelations in the report.
"I absolutely abhor the idea that some other nation would have influence in our government, especially if it's attached to a pecuniary benefit to any individual. Now that, also, will need to be thoroughly investigated, and I just think that it's precisely what will be happening right at this moment. Remember, that's why we have ASIO. Now, there's a vast difference between a party getting a donation that there's no real direct benefit to a person, but if people are buying influence in our nation, well, that's treachery. And we can't abide by that in way, shape or form from any country, not just China, any country."
