SYDNEY (AFP) - China's rising and "unprecedented influence" in the Indo-Pacific region will challenge American interests, but confrontation must not define relations between the two powers, Australian Prime Minister Scott Morrison warned on Thursday (Nov 1).

In his first major foreign policy speech, Morrison tried to tread a careful line between Australia's alliance with the United States and engaging a rapidly and ever more assertive China.

"Inevitably, in the period ahead, we will be navigating a higher degree of US-China strategic competition," Morrison told the Asia Society Australia in Sydney.

"It is important that US-China relations do not become defined by confrontation," he said, against a backdrop of the two economic behemoths trading economic sanctions and counter-sanctions in an ever-deepening trade dispute.

Australia - a member of the "Five Eyes" Western intelligence alliance and with longstanding and close military ties with Washington - finds itself slap-bang in the middle of one of the 21st century's geopolitical hot spots.

A quiet battle is raging for influence in the South Pacific - a region of small island states that is vital to international shipping and provides a stepping stone for Beijing and Washington to project military and economic power across the Pacific region.

"As economic power shifts, it's unsurprising that nations will seek to play a bigger strategic role in our region," said Morrison.

"China, in particular, is exercising unprecedented influence in the Indo-Pacific," he said.

"China is the country that is most changing the balance of power, sometimes in ways that challenge important US interests."

While stressing ties with the United States are vital to Australia's security, he said relations with China must be kept on an even keel.

Rhetoric between Canberra and Beijing has been heightened by Australia's decision to bar Chinese state-linked telecoms firms from operating Australia's new 5G network on the grounds that they pose a security risk.

Morrison described Australia's relationship with China as "vitally important", noting trade, tourism and educational exchanges were at a record high.

Beijing has been showering billions of dollars in infrastructure loans to tiny island nations across the Pacific China, and is reportedly talking to Vanuatu about the possibility of opening a military base there.

Morrison, who came to office in August, indicated Australia would also push its own influence.

He announced an initiative to develop the Lombrum military base in Manus, Papua New Guinea.