AUTHORITIES are investigating what is believed to be a large drug-trafficking ring being run by navy personnel out of Sydney's Garden Island naval base.

The Australian reports the probe by NSW police and the Defence Department is believed to be focused on a core of sailors - potentially dozens - whom Defence believes are operating a lucrative drug distribution network from the Sydney Harbour base, which is the navy's main base in eastern Australia.

If proved, it would be one of the most serious drug-related scandals to hit the Australian Defence Force, which has struggled to contain the use of illicit drugs in its ranks.

A navy source yesterday said the issue was being treated seriously by the navy's top brass. "If these allegations are proved, then these people can kiss goodbye to their futures," the source said.

A Defence spokesperson yesterday confirmed that the ADF Investigative Service was examining the allegations.

The Defence Department and NSW Police are investigating the alleged supply and use of illicit substances, including steroids.

The department says on December 10 it launched an investigation after receiving a tip-off. Premises ``at a naval base in Australia'' were searched by the Australian Defence Force Investigative Service (ADFIS) alongside local police, it said.

``A range of substances and other items were seized and a number of Defence personnel were tested for prohibited substance use,'' it said in a statement.

``It is too early in the investigation to confirm the nature of all of the substances seized to date, though it can be confirmed that steroids were found.''

The centre of the search is believed to be the Garden Island naval base at Woolloomooloo on Sydney Harbour.

NSW Police are also investigating the matter.

``Further comment would be inappropriate,'' a police spokeswoman told AAP.

Home Affairs Minister Brendan O'Connor said the allegations were of concern.

``I am always concerned if there are allegations of drug dealing anywhere,'' he told reporters in Sydney.

``I understand that matter is under investigation, so it is being taken very seriously by defence.

``There are criminal sanctions for criminal acts and we would expect people to be treated accordingly and it wouldn't matter whether they were a civilian or a person from the military.''

The ADFIS investigation is continuing.

``It would be inappropriate for Defence to provide further comment until these investigations are completed,'' the department said.

Defence said it had a zero tolerance policy regarding the use of illicit substances by personnel and was taking the matter very seriously.

The suspected drug ring is believed to involve a "sizeable number of uniformed navy personnel" and according to one source, it has involved the sale of drugs to backpackers visiting Sydney.

It is unclear how long the investigation has been going and what drugs are allegedly involved.

No charges have been laid.

Read more about the suspected navy drug ring at The Australian.

Originally published as Police probe navy drug ring claim