Malcolm Turnbull says Australia would carefully consider any US requests to conduct freedom of navigation exercises in the South China Sea.
Malcolm Turnbull has left the door open to Australia potentially helping the US on freedom of navigation exercises in the South China Sea.
The issue is a key topic of discussion on the sidelines of the APEC leaders' meeting in the Philippines capital Manila which starts on Wednesday.
The prime minister said it's in the best interests of all countries which have claims - including China's - to resolve disputes in a peaceful manner.
Australia would carefully consider any US requests to potentially participate in US maritime exercises.
"We will consider our position in respect of all of these matters with great care," he said in Manila on Wednesday.
"As to the manner in which we respond to this issue, we believe in freedom of navigation."
Earlier, Foreign Minister Julie Bishop said Australia was taking China at its word that it is not militarising islands in the disputed waters.
She said international rules governing the region would be made clear after a court case involving the Philippines and China.
In 2013, the Philippines took China to the Permanent Court of Arbitration in the Netherlands seeking a ruling on its right to exploit the South China Sea waters in its 200-nautical-mile exclusive economic zone (EEZ), as allowed under the United Nations Convention on the Law of the Sea.
China argued the court had no jurisdiction but the court rejected the suggestion and will next week start hearing the case.
China has boycotted the proceedings and rejects the court's authority in the case.
Beijing claims sovereignty over almost the entire South China Sea, dismissing claims to parts of it from Vietnam, the Philippines, Taiwan, Malaysia and Brunei.
It has built artificial islands with military-standard facilities over coral reefs in areas believed to be within the EEZ of the Philippines.
"It will set some legal principles against which China's actions and the actions of other countries will be judged," Ms Bishop said.
"We don't take sides, we don't back one player against another - that is a matter for arbitration and negotiation."
However, she said Australia urged all parties to settle claims peacefully and in accordance with international law.
Ms Bishop said Australian Navy ships would continue to traverse the sea because freedom of navigation and overflight were "fundamental".
Mr Obama, who met with Mr Turnbull in Manila on Tuesday, used his visit to announce new ships and other maritime security resources for Southeast Asian nations.
He said the US would continue to work with Australia and Japan to ensure security in Southeast Asian waters, which are key to trade and oil shipments.