Independent MP Andrew Wilkie has accused the Federal Government of "dancing with the devil" by entering into an intelligence sharing agreement with Iran.

Foreign Minister, Julie Bishop announced Iran had agreed to trade information on Australian citizens fighting in Iraq, as part of efforts to counter the Islamic State militia.

Ms Bishop was visiting Iran to speak directly with government officials and maintained the country had solid information to offer.

"They are in Iraq in places that we are not, they also have a very sophisticated intelligence network so there's a lot of information that they've been gathering," she said.

But Mr Wilkie, himself a former intelligence analyst, said Iran was the last nation Australia should be swapping sensitive information with.

"The announcement by the Foreign Minister that Australia is entering into a security arrangement with the regime in Tehran really should send shudders down the spine of every Australian," he told reporters in Canberra.

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"Frankly, it might be good political theatre for the Government but it's complete and utter madness from a security point of view."

Speaking to the ABC's 7.30 program on Monday night, Ms Bishop said the deal could help authorities prosecute Australians fighting with IS.

Foreign fighters laws passed Parliament last year, allowing authorities to declare areas no-go zones for Australians.

Ms Bishop said Australians fighting in Iraq could be in breach of domestic laws.

"And should they seek to return to Australia, we need the evidence of what they were doing in Iraq and Syria because they could well be in breach of our criminal laws," she said.

"It's in our interest to gain as much information as we can on those Australians who are seeking to take part in terrorist activities in Iraq and Syria and beyond."

Australia risks being a pawn: Wilkie

Mr Wilkie said Australia risked being used as a pawn and the information could not be trusted.

"When you start dancing with the devil in a place like Tehran, then we run the risk of becoming almost as bad as those who we dance with," Mr Wilkie said.

"They are also experts at disinformation and we've seen this time and time again, when the regime in Iran will tell people whatever they want us to believe."

Mr Wilkie said he was the only serving member of Parliament who had worked in Australia's intelligence services and therefore had a unique insight.

"I saw first-hand some of the, and excuse the expression, the crap that was coming out of Iran, which was worse than useless because it was downright misleading," he said.

He maintained Australia should not accept intelligence that comes from torture.

Opposition Leader Bill Shorten said Labor was seeking further details about the deal and would take a steady and considered approach.

"I'm not naive," he said.

"Iran's a very sophisticated country with a different view of the world to Australia and so we need to keep our eyes open whenever we deal with them."