Mr Turnbull said claims that IS would be involved in power sharing were nonsensical.
“Nobody is suggesting that, least of all me,” he told reporters in Manila, where he is attending the APEC summit.
“Daesh or the so-called Islamic State seeks to establish its own caliphate. It has no interest in any political settlement and I'm not aware of anyone having any interest in raising it with them.”
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He thinks a political solution in Syria could be found without any need to negotiate with IS.
"The key to a political settlement in Syria is finding a mechanism where the aggrieved Sunni majority of that country can ... be included in a new government," he said.
Such a move would see IS lose its fundamental base, he added.
'A pragmatic approach required'
During sideline meetings at the G20 in Antalya in Turkey earlier this week and again at the APEC summit, Prime Minister Turnbull spoke with the United States President Barack Obama, Russian President Vladimir Putin and British Prime Minister David Cameron.
He said all four leaders acknowledged there is an urgent need for a political solution in Syria, but he concedes the solution will be difficult to reach.
“The reality, however, is that the approach has to be a pragmatic one and whatever combination of players that are able to achieve the settlement, and that includes groups inside Syria.”
Political solution in Syria cannot include Assad: Obama
US President Barack Obama said today that Islamic State militants could not be eliminated until there was a political settlement in Syria, which could take some time.
Such a resolution would not be possible if Syrian President Bashar al-Assad remained in power, said Obama.
Labor leader Bill Shorten said leaving the Assad regime in charge gave no prospect of long-term stability to millions of people in Syria or those wanting to return to the country.
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"There can be no lasting peace if you keep the butcher Assad in power," he told reporters in Sydney.
Asked if he agreed to the "butcher" label, Mr Turnbull said: "I think he has been a murderous tyrant, there is no doubt about that."
The Assad government is accused by many of carrying out attacks against its own people, including bombings and using chemical weapons.
Mr Turnbull said the number of deaths and people displaced underlined the need for a speedy resolution.
“This is a humanitarian catastrophe of extraordinary scale. It's said to be the worst since the Second World War and I have no reason to doubt that a resolution is absolutely critical.”
Effectivness of airstrikes against IS questioned
Earlier Liberal Senator Zed Seselja acknowledged air strikes against IS targets in Syria had not made the kind of impact Australia had hoped for, raising the option of combat troops.
Fellow Liberal Dan Tehan, who is chairman of parliament's intelligence and security committee, believes a political solution could be achieved in Syria within six months.
Mr Tehan said President Assad and his chemical weapons should be taken "out of the picture".
"What we need to do is show that we have the will to act and to act quickly and decisively against Islamic State," he told ABC radio. Mr Tehan refused to be drawn on whether Australian SAS troops should be sent into Syria to advise rebels, but said more military force would be needed.
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- with AAP, Reuters