Manufacturing the Army's service dress uniforms in Australia instead of China would be three times more expensive, Defence Minister Marise Payne has told Parliament.

Earlier this week the ABC revealed a Chinese subcontractor is making the non-combat clothing as part of a $9 million contract with Australian Defence Apparel which was signed last year.

The revelation prompted outrage from the Federal Opposition and South Australian Senator Nick Xenophon, who described the move as a "disgrace".

Under questioning from Labor's Kim Carr, Senator Payne told Parliament the successful tender was considered the best value for money when it was awarded in April last year.

"Australian Defence Apparel's tender was assessed as the best value for money with the tendered price representing an estimated saving of over 18 per cent over the prices at that time," Senator Payne said.

The Minister told Parliament the Bendigo-based company advised the Government that manufacturing the uniforms locally would be far a more expensive option.

"Australian Defence Apparel has estimated that manufacture in Australia would be triple the cost of the contract as it stands," she said.

"The service dress jacket and lowers are being manufactured in China utilising established sub contractor arrangements.

"However, items such as Akubra-provided ADF Slouch Hat and the RM Williams parade boots are of course manufactured in Australia."

Labor's industry spokesman Kim Carr said the Defence Minister failed to explain why the uniforms cannot be manufactured locally in Bendigo using Australian materials.

"Minister Payne told the Senate that the Government had signed the contract on the 30th of April 2015 with Australian Defence Apparel to ship the work to manufacture the dress uniform to China," Senator Carr said in statement.

"Just 20 days later Minister Payne had the front to visit Australian Defence Apparel in Bendigo speaking to workers about their high skill work with the full knowledge that the work for the new dress uniform would be sent offshore."

The Australian Army selected a darker brown khaki look to replace the current uniform in a nationwide survey, saying it better reflected their proud heritage.

In July, the new dress uniform made its public debut in Paris when Australian soldiers led a march down the Champs Elysees for Bastille Day celebrations.