An IT firm holding data for some of the government's most secretive departments has warned the nation's encryption laws are leading to some multinational companies withdrawing from Australia while keeping data in Russia and China.

Vault Cloud, which provides online storage to parts of the federal government including the Department of Defence, said companies were abandoning Australia because of its small market and the "perceived compliance burden of the jurisdiction".

Peter Dutton's department said the metadata laws were working as intended. Credit:Alex Ellinghausen

Australia passed a controversial law last year that allows government agencies to compel IT companies to give the government access to users' encrypted communications for a wide range of law-enforcement purposes.

Vault Cloud boss Rupert Taylor-Price said the secret nature of the process the government uses to ask for users' encrypted information meant companies did not know how difficult and expensive it would be to comply.