Australia would be greatly concerned if foreign military bases were to be built on Pacific islands, Prime Minister Malcolm Turnbull says.
Fairfax Media has reported China approached Vanuatu about building a permanent military base.
However, the Pacific nation's foreign minister Ralph Regenvanu told the ABC on Tuesday there had been no preliminary discussions.
"No one in the Vanuatu government has ever talked about a Chinese military base in Vanuatu of any sort," he said.
"We are a non-aligned country. We are not interested in militarisation, we are just not interested in any sort of military base in our country."
Mr Turnbull said he had been advised there had been no request from China for Vanuatu to host a base.
But he said it was important the Pacific be maintained as a peaceful region.
"The maintenance of peace and stability in the Pacific is of utmost importance to us," Mr Turnbull told reporters in Brisbane.
"We would view with great concern the establishment of any foreign military bases in those Pacific island countries and neighbours of ours."
Chinese money has already helped finance a new wharf on the north island of Espiritu Santo, alongside an upgrade to the international airport.
The ability for China to dock warships and refuel on what would be their first Pacific base has rung alarm bells among Australian security chiefs, as well as New Zealand and US officials, who are said to be monitoring the situation, Fairfax says.
Australia's Foreign Minister Julie 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.
"I'm not aware of a military offer being made by China to Vanuatu," she said.
China had been more engaged with the Pacific recently and its naval ships visited Vanuatu in 2017, but those sorts of visits were normal for all nations to conduct, Ms Bishop said.
Labor foreign affairs spokeswoman Penny Wong said if the report was correct the base would be a "potential game changer for the region and for Australia", with security and economic implications.
Australia needed to work more closely with its Pacific neighbours and stop cutting the aid budget, she said.
"This is a wake-up call," she told ABC TV.