India has declined an Australian request to take part in multilateral naval exercises in July over fears it could unnecessarily enflame diplomatic tensions with China.

For a quarter of a century military assets from the United States and India, and more recently Japan, have come together for joint annual defence drills — known as Exercise Malabar — north of Australia.

In 2007, Australia participated in Exercise Malabar but the Rudd government then withdrew from the exercises and accompanying security talks after concerns expressed by Beijing.

Earlier this year, Australia's defence attache to New Delhi requested that the ADF be allowed to once again take part as an official "observer", but the Government has confirmed India has declined the approach.

"Australia has regularly discussed the matter of the Royal Australian Navy's involvement in Exercise Malabar with India since 2015," a Defence spokesperson told the ABC.

"Australia has not been invited to join Exercise Malabar 2017."

During an April visit to Tokyo, Defence Minister Marise Payne acknowledged Australia's desire to join the military event.

"Australia is very interested in a quadrilateral engagement with India, Japan and the United States," Senator Payne said.

"What form that may take is a matter of discussion between our various countries."

Later this month Australia and India will for the second time conduct bilateral naval war games known as Exercise AUSINDEX.

The Defence Department said Australia and India "are building on the positive momentum in our defence relationship to deepen engagement and to increase the consistency and complexity of our existing activities".

Opposition Defence spokesman Richard Marles said it was disappointing New Delhi had rejected Australia's approach but work to build the nation's relationship with India must continue.

"I don't for a moment think that this represents a huge issue in the context of the relationship between ourselves and India, and I think it's really important that the Government continues to work with India to try and do more co-operation and that may well involve more defence exercises," Mr Marles told the ABC's AM program.