United States navy warships should be based in Perth in order to combat China's growing presence in the Indo-Pacific, a new report has warned.

The Countering China's Militarisation Of The Indo-Pacific report, by Washington's Centre for Strategic and International Studies, calls on Australia and its allies to "spotlight and push back" against China's power projection in the region if they want it to remain "free and open".

"China's military penetration into the South Pacific would challenge one of the oldest and most fundamental tenets of Australian strategic doctrine, the exclusion of outside military powers from its island approaches," the report warns.

The expert document comes a week after China's military issued challenges to three Australian warships sailing through the South China Sea to Vietnam earlier this month.

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It also follows reports Beijing is seeking to establish a permanent military base in Vanuatu, less than 2000km from the Australian border, which defence experts have described as a "massive nightmare" for our country.

China and Vanuatu have both denied the initial Fairfax report, with Foreign Minister Ralph Regenvanu saying Vanuatu is "not interested in militarisation".

US news network CNBC, meanwhile, reported yesterday that China has installed anti-ship cruise missiles and surface-to-air missile systems on three of its outposts in the South China Sea. Citing sources it said had direct knowledge of US intelligence reports, it said the missiles were moved to Fiery Cross Reef, Subi Reef and Mischief Reef within the past 30 days.

The installations, if confirmed, would mark the first Chinese missile deployments in the Spratly Islands. Several Asian countries including Vietnam and Taiwan have rival claims to the islands.

China has made no mention of any missile deployments but Reuters reported that the Foreign Ministry said China had irrefutable sovereignty over the Spratly Islands and that its necessary defensive deployments were for national security needs and not aimed at any country.

- REUTERS quoted ministry spokeswoman Hua Chunying as saying: "Those who do not intend to be aggressive have no need to be worried or scared."

To counter China's growing infrastructural presence in the South Pacific, South-East Asia and the Indian Ocean, the CSIS report recommends the Turnbull Government "establish a rotational presence of US surface combatant vessels at HMAS Stirling in Western Australia".

It also calls on Australia, the US, Japan and India to work together to build greater maritime domain awareness in the Indian Ocean, as well as establish a "joint task force for low-intensity operations" such as counter-piracy and humanitarian aid for the Indo-Pacific.

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Tensions have risen sharply between Australia and China in recent months. Just last week, Chinese ambassador to Australia Cheng Jingye warned it could have consequences on the two countries' trade relations.

Cheng criticised the state of Canberra and Beijing's relationship, warning that Australia needs to do more to "increase mutual trust".

"If there is a growing lack of mutual trust, in the long run it may have some undesirable impact [on trade relations with China]," he told the Australian.

"Unfortunately, over a certain period, especially starting from the latter half of last year, we have seen a kind of systematic, irresponsible, negative remarks and comments regarding China which has caused adverse impact on bilateral relations.

"It is detrimental to the image of Australia in the eyes of the Chinese public. It is something that neither side would like to see."

There's an array of other hostilities between the two nations.

Last month, it was reported China had been deferring a range of visits in order to take a political stand against Australia. The state-run Global Times newspaper has described Australia's behaviour in recent years as "baffling" and "repugnant", accusing it of being an "anti-China pioneer".

China's embassy in Canberra has issued safety warnings to Chinese students living in Australia, although new figures have revealed that the number of Chinese students studying there is actually rising. news.com.au