Foreign Affairs Minister Julie Bishop has played down the presence of a Chinese spy ship observing Australian-United States military exercises this month, saying the ship was entitled to be in international waters.

Ms Bishop, speaking in Canberra on Tuesday morning, has also expressed concern about rising border tensions between nuclear powers China and India and called on both sides to "de-escalate" to avoid the risk of a miscalculation or accident.

The Chinese AGI or "auxiliary general intelligence" Type-815 ship was spotted off Queensland during this month's Talisman Sabre exercises. It was in Australia's exclusive economic zone, which is not against international law though the ABC has quoted unnamed defence officials as describing the spying as "unfriendly" and "provocative".

Its presence has provoked debate among experts because while it is normal for countries to gather naval intelligence on each other, China is known to warn off other countries' military planes and ships in the South China Sea even if they are not in claimed Chinese territorial zones.