The Defence Department has confirmed it is investigating claims Australian sailors engaged in a sex-for-money competition.

Channel Seven News aired claims sailors from HMAS Success ran a contest to see who could sleep with the most female crew members.

Cash points were assigned and records were allegedly kept in a book known as 'The Ledger'. Dollar values were placed on each woman's head, said the report.

The sailors reportedly dared one another to have sex in numerous locations, like the top of a pool table, and more money was on offer if a sailor could sleep with a female officer, or lesbian.

It is alleged the contest was discovered when the ship was in Singapore in May.

The captain ordered the sailors to immediately return home to Australia after they were formally interviewed.

A Defence Department spokesman would not confirm how many sailors were involved but says the men were removed from the ship and a formal inquiry is now underway.

"The matter concerning sailors who were returned to Australia from HMAS Success in May 2009 remains under investigation, so the veracity of any allegations has yet to be confirmed," Defence said in a statement to the Seven Network.

"The individuals were removed from the ship after an equity and diversity health check, which led to a formal inquiry being initiated.

"During the equity and diversity health check a number of concerns were raised by female crew members. These concerns are now subject to formal inquiry."

The statement said the navy demands a working environment "free from unacceptable behaviour".

It warns all of its staff to "treat others fairly" and that any form of unacceptable behaviour "will be dealt with".

- ABC/AAP