Powerful crossbench senator Nick Xenophon has warned China could sink an Australian naval ship to send a message to the United States if tensions escalate in the South China Sea.

And he has raised the spectre of calls for Chinese Australians to be interned in camps if conflict broke out between China and the US and her allies including Australia.

Writing in Fairfax Media on Friday, Senator Xenophon argues the cost of conflict with China would be so high that it outweighs any obligation Australia should feel to join its ally the United States in pressuring Beijing to curb its activities in the strategic waterways.

If Australia were to get involved in military action in the South China Sea it should be on its own terms and backed by parliamentary approval, he said.