News Limited papers say the high-tech material is currently made in a Victorian factory employing up to 400 people - but the contract has now been outsourced to China.
A Defence spokesman confirmed the textiles would now be made in China, but said they would be sewn into uniforms by a Bendigo company.
The opposition has blasted the decision, saying it raises national security concerns.
It has branded the move a dangerous and unpatriotic way to save a few dollars on a chemically-treated fabric that has 'top-secret qualities'.
"Our soldiers risk their lives under the flag and in the uniform of this country," opposition industry spokeswoman Sophie Mirabella told the Herald Sun.
"It's dangerous, unpatriotic and tawdry for the Government to save a few dollars and buy the fabric overseas."
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