The government is backtracking from its election promise to build the navy's new submarines in their entirety in Adelaide, with new vessels possibly built in Japan.
Prime Minister Tony Abbott says Australian work on new submarines will be centred on South Australian shipyards.
But that may now be a small part of the entire construction program, with most performed offshore, which is contrary to what the government promised before the election.
Media reports suggest Japanese Soryu-class submarines built in Japan will replace the navy's six Collins submarines, which will be retired in the 2030s.
"The most important thing is to get the best and most capable submarines at a reasonable price to the Australian taxpayer," Mr Abbott told reporters in NSW on Monday.
A final decision will be announced in the Defence White Paper to be released by June 2015. The government may spell out its basic approach before the end of the year.
Before the election, Mr Abbott and then opposition defence spokesman David Johnston said 12 new submarines would be built in Adelaide.
Soured by the poor performance by shipbuilders constructing the navy's three new air warfare destroyers, running late and over cost estimates, the government is leaning towards offshore construction.
A spokesman for Senator Johnston said a fundamental issue was avoiding a gap between retirement of the Collins boats and entry to service of their replacements.
Collins submarines were built at the ASC Adelaide facility between 1990 and 2003.
Since then, it's been used for their maintenance, which would continue with the next-generation vessels.
In its 2009 and 2013 defence white papers, Labor promised 12 new subs to be built in Adelaide.
There are a number of European building contenders but the Soryu, in production for the Japanese navy, has emerged as a late front runner because it most closely matches Australian requirements.
They are larger than the Collins boats but with shorter range.
Soryus would need substantial modification, not least to accommodate larger Australian sailors. There would still appear be considerable work for local companies installing Australia-specific components such as the computer combat system.
Labor was outraged by suggestions the government would buy offshore, as was the South Australian government.
Opposition assistant defence spokesman David Feeney said this would lead to the loss of thousands of highly skilled jobs.
"It's time the coalition kept its promises to South Australia and recommitted to building Australia's future submarines in Adelaide," he said in a statement.
Acting SA defence industries minister Susan Close said Senator Johnston stood in her electorate and said the submarines would be built in SA.
"I don't think that was an ambiguous statement. So this is nothing but a backflip if indeed they do go ahead and make this decision," she said.
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