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He also told the ABC on Tuesday there had been no preliminary discussions with China. "The government of Vanuatu has said there is no such [Chinese military] proposal".

Ms Bishop said while China was investing in infrastructure around the world, it had to date only established one military base - in Djibouti in northern Africa.

The prospect of a Chinese military outpost so close to Australia has been discussed at the highest levels in Canberra and Washington.

Initial talks have already begun with Vanuatu, which could result in China establishing a major military presence and upsetting the delicate strategic balance in the region, Fairfax Media reported on Tuesday.

Fairfax said Chinese naval ships would dock to be serviced, refuelled and restocked at a Vanuatu port, with the agreement eventually leading to a full military base.

Beijing has been showering Vanuatu, which has a population of about 270,000, with hundreds of millions of dollars in development money and last week committed to building a new official residence for Prime Minister Charlot Salwai as well as other government buildings. That would build up to a permanent arrangement, the SMH reports.

Chinese money has already helped finance a new wharf on the north island of Espiritu Santo, alongside an upgrade to the global airport.

But he said it was important the Pacific be maintained as a peaceful region.

As the reports of a possible Chinese military base in Vanuatu spread in worldwide media, experts also weighed in on the impact of such a base. A Chinese embassy spokesman even called the idea "ridiculous".

Such a plan would mark an expansion of China's military aspirations beyond its controversial activities in Asia, particularly the South China Sea, where it has been building artificial islands on reefs.

Peters said there was little tangible evidence to back up the report, and he noted that Vanuatu officials had denied any knowledge of the potential deal in Australian news reports.

Djibouti's position on the northwestern edge of the Indian Ocean has fuelled concerns in India that it will become another of China's "string of pearls" military alliances and assets ringing India, including Bangladesh, Myanmar and Sri Lanka.

"We would view with great concern the establishment of any foreign military bases in those Pacific Island countries and neighbours of ours", Mr Turnbull said.

Leader of the Opposition Simon Bridges said the reports of a base still appeared to be "speculative".

"Chinese presence in Vanuatu, while today about fishing access and commercial trade, tomorrow could represent a threat to Australia's northern approaches".

Vanuatu is located about 1,200 miles from Australia.

Australia and New Zealand both said they were monitoring developments.

Medcalf said China was increasingly seeking to exert influence in the South Pacific.

Graeme Smith, a Pacific Affairs expert at the Australian National University, said a Chinese base on Vanuatu would send a strong message to Australia, the United States and their allies.

China has set a pattern in the Indian Ocean whereby it builds infrastructure paid for by concessional Chinese loans which the local government can not repay. Chen Ke, a spokesman for the ambassador to Vanuatu, also explained that China's presence in the Pacific was purely for humanitarian purposes and also spoke about a planned disaster response exercise between New Zealand, Vanuatu and China.

Early a year ago, Beijing donated 14 military vehicles to Vanuatu.