Defence Minister Richard Marles has ordered his department to review laws governing retired military personnel, amid reports former members of the ADF have been approached to provide training to China.
Last month, Britain's Ministry of Defence announced it was taking immediate steps to "deter and penalise" UK personnel who work for the People's Liberation Army (PLA), following revelations dozens of former RAF pilots are being paid lucrative sums as instructors in China.
Mr Marles said he had asked his department to urgently investigate the reports when they emerged.
"The information provided to me so far presents enough evidence to warrant the need for a detailed examination into the adequacy of current Defence policies and procedures addressing this matter," he said in a statement.
The defence minister told reporters former Defence personnel had an "enduring obligation” to protect state secrets.
"I want to make this point. For those who do come into possession of our nation's secrets, either through service in the Australian Defence Force or indeed, service in any other part of the Commonwealth, there is an enduring obligation to maintain those secrets for as long as they are secrets, which persists well after their engagement with the Commonwealth, and to breach that obligation is a very serious crime.
"And that is clear and unambiguous."
Former defence minister and now Opposition Leader Peter Dutton last month described the reports as "alarming" and challenged Labor to introduce new laws to prevent the activity.
At the time, the opposition claimed it had been informed two former Australian Defence Force pilots had been approached to join a lucrative program training Chinese fighter pilots.
Mr Marles, who took just two questions from reporters on Wednesday, was asked if Australia had confirmed if any Australians had provided training to China, but he declined to answer.
He insisted the government would change the law if there were any "weaknesses" in rules that apply to former Defence personnel.
Under current laws, ADF personnel are banned from providing military-style training which has some connection with a foreign government, unless the training is authorised by Australian authorities.
They can serve with and work for foreign militaries, with permission from Australia, but are banned from sharing secrets obtained from the ADF.
Officials insist police will be alerted if laws were broken
Defence officials were pressed on the inquiry during a Senate estimates hearing in Canberra, but refused to provide any detailed information.
Deputy secretary Celia Perkins told the hearing that Defence had been "made aware through engagement with security agencies that former ADF personnel may have been approached to provide military-related training services".
But she did not say if any of those personnel had accepted the offer to provide training.
She told the hearing that Defence had been aware of the issue before reports of former pilots being poached hit the media, but did not say when.
The deputy secretary also conceded that the department was still trying to gauge the scale of the problem.
“Do you know how many pilots have been approached?” Liberal senator James Paterson asked.
“No, senator” she replied.
Defence secretary Greg Moriarty said if the department uncovered any potential breaches of the law, then it would pass on that information to the police.
"If we become aware of any potential breaches of Australian law by ex-members of the ADF we will be engaging closely with appropriate law enforcement agencies to provide whatever we can in terms of facts and information," he said.
"We will be supporting any investigative work that any other agency undertakes."
Commando turned Liberal MP alarmed at reports
Liberal MP and former Special Forces commando Keith Wolahan, who worked as a barrister before serving in the military, backed the minister's actions.
"We've heard rumours about overseas pilots going through this, but to hear Australians have been approached, that is alarming," he told the ABC.
"We all have obligations from our professional careers that we take with us and most of those are secrets that go to the grave.
"Especially those who are exposed to sensitive secrets in the Defence Force."
But Mr Wolahan said those obligations may not be well understood within the Defence Force and that is an issue that needs to be addressed as part of the review.
"I think it's fair to assume that most laws aren't well understood," he said.
"Whenever there’s a review of legislation, we also need to look at a review of education because the best law enforcement is prevention."
