China's state media has levelled extraordinary claims against Australia, accusing the country of sending spies to Beijing.
China has released a series of images, purportedly evidence of Australia's espionage.
The photos, allegedly uncovered by Chinese law-enforcement agencies, show wads of cash and other "spy tools".
The allegations were levelled by China's state media, which claimed Australia is ramping up spying efforts against Beijing as diplomatic ties come under heavy pressure.
The Chinese Communist Party-run Global Times tabloid accuses Australia of waging an intensifying espionage offensive through sending spies to China.
It also claims Australia is instigating defections, spying on Chinese students and feeding "fake news" to the media to hype up theories about Chinese spying.
The story, which is based on an anonymous source from a Chinese law-enforcement agency, says Australia tried to install wiretaps in the Chinese embassy in Canberra.
Prime Minister Scott Morrison avoided addressing the issue directly when asked about it.
"I wouldn't be relying on Chinese state media for your sources for questions," he told reporters in Sydney on Monday.
The Global Times published photos of "spying materials" including a compass, a USB flash drive, a notebook, a mask, gloves and a map of Shanghai, said to have been seized from arrested Australian agents.
The state-owned newspaper warned Chinese agencies would take a harder line on Australian espionage operations.
Liberal MP and former diplomat Dave Sharma suggested the report lacked credibility.
"This is a classic disinformation campaign designed to muddy the waters," he told Sky News on Monday.
It comes days after a NSW upper house MP was raided by ASIO and federal police over allegations Chinese agents had infiltrated his office.
Shaoquett Moselmane was last week suspended from the Labor Party and faces a suspension from Parliament.
In his first public comments since the raids, Moselmane said he was not a suspect in the investigation.
"I have done nothing wrong. I have never jeopardised our country."
Crossbench senator Rex Patrick, who has been pushing for a parliamentary inquiry into Chinese influence, said state-based politics was seen as a weak point in the system.
"I note that in NSW they have no laws that deal with foreign influence and maybe that is one of the big lessons that needs to come from this," he told the ABC.
"The Chinese state is very well aware [federal] aspirations in the political domain start in the state jurisdiction and that is where they target things."
Patrick said he had no doubt Australia engaged in "some form of spying" overseas.
"I think the difference in relation to the concerns here in Australia are that the Chinese are engaging in influencing Australian politics and that is something that is a little unusual."