The federal opposition is sitting on the fence over a $1.5 billion loan request from Papua New Guinea.
Australia's nearest neighbour has made an unusual request for $1.5 billion in direct budget support.
The request from Papua New Guinea comes weeks after the Pacific nation approached China to refinance its entire debt, exposing a challenging strategic tension Canberra is now forced to navigate.
Australia already gives PNG about $600 million a year in development aid but has rejected previous requests for direct budget support.
Acting Labor Leader Richard Marles said the government would need to consider the request very carefully.
"That is a very big request that's been made by PNG - it's not something that Australia has done for some time," he told ABC Radio National on Tuesday.
Australia usually prefers to provide aid for health and education programs but Mr Marles cautioned against a "fundamentalist" approach to delivering development assistance.
"It's important we take each request on its merits and give it due consideration," he said.
The commerce minister of PNG, Wera Mori, has hinted he will ask China for support if Australia turns him down.
But Mr Marles is reluctant to view the latest request through the typical prism of a contest between Beijing and Canberra for strategic dominance in the Pacific.
"I actually think it's really important that we not engage with the Pacific by reference to China," he said.
"I fear that sometimes Australia has gone about things, and as a result, it doesn't surprise me that you get comments of that kind coming back from the Pacific.
"We need to be focusing on the Pacific on its own terms; we can't be there because we don't want somebody else to be there."