Imposing a minimum 90 per cent local ownership level on media outlets will limit investment in Fiji, Foreign Minister Stephen Smith says.
The decision was another example of the Pacific nation's military government - led by military leader Frank Bainimarama - impinging on the democratic rights of its people, Mr Smith said.
It would also have "a significant adverse influence" on Fiji's economy.
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News Limited, which will be forced to sell the Fiji Times, is also concerned about others aspects of a government decree.
Jail terms will be imposed on journalists whose work is deemed against the "public interest or order".
News Limited chief John Hartigan says that means any story the government did not like.
"This is a sorry day for press freedom, for democracy and for the people of Fiji," he said.
Mr Hartigan took a swipe at the Australian government, saying it had brought little pressure to bear on the military government to hold elections, restore democracy or re-establish the depleted power of Fiji's judiciary, apart from imposing travel bans on regime leaders.
Mr Smith said he was surprised by that observation.
"We've been at the forefront of Fiji's suspension from the Pacific Islands Forum," he said.
"We've been at the forefront of Fiji's suspension from the Commonwealth and we impose travel restrictions on them."
