Three sailors have been suspended from duties and could face prosecution for unacceptable behaviour aboard HMAS Ballarat.
Defence force investigators boarded HMAS Ballarat in early November after a sailor made allegations of sexual assault against several members of the ship's company.
Defence issued an update on its investigations on Wednesday, saying there is a reasonable suspicion three members of HMAS Ballarat ship's company have committed serious service offences.
They have been suspended from duty.
"Similar to civilian criminal investigative processes, evidence gathered will now be referred for prosecutorial review," Defence said in its statement.
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Chief of Navy Vice Admiral Ray Griggs said a separate administrative inquiry into "certain aspects" relating to the HMAS Ballarat allegations has commenced.
"This inquiry is being run ... to identify any broader procedural or cultural issues that may require further action by Navy," he said.
He reiterated that Navy did not tolerate unacceptable behaviour.
"It is inconsistent with its values and the behaviours," he said.
"Unacceptable behaviour by individuals damages our people and our effectiveness to conduct operations and achieve our mission," he said.
Defence said the director of military prosecutions may consider a range of actions against the three sailors, including laying charges and referral to the Registrar of Military Justice for consideration by a Service Tribunal, or referral for civilian prosecution.
Defence has not detailed the allegations.
But after the defence investigation was made public a former naval member claimed officers were "set upon, stripped off and had things essentially put in their bums".
