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A Chinese company plans to build a city on Australia's doorstep in a move set to inflame tensions between Beijing and Canberra.
A Chinese company has approached the Papua New Guinea (PNG) government with a proposal to build a $39 billion city just kilometres from Australia's sea border, according to leaked documents obtained by The Australian.
Hong Kong-based WYW Holding asked PNG Prime Minister James Marape in April to sign off on a "build operate transfer" deal to build the city on the island of Daru, situated just two kilometres Australia's border in the Torres Strait.
If approved, the "New Daru" would be passed onto PNG after an unspecified period of Chinese control.
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A spokesman for Marape told The Australian he was "unaware of such projects", but Home Affairs Minister Peter Dutton said Australia was "keen to discuss" the issue with PNG.
"I think there are all sorts of sovereignty issues and local issues in terms of land owners and land rights," he told Today.
"We will look at it closely, but Australia will always act in our best interests and we will support our neighbour."
Daru is the capital of PNG's impoverished Western Province and has a population of just 15,000. The island has been ravaged by an extremely drug-resistant strain of tuberculosis.
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But the Australian Strategic Policy Institute's Jonathan Pryke said Beijing was "more likely to grow a third arm" than complete the project and warned the Australian government against by overreacting.