Australian defence companies were overlooked for a $55 million military boat contract at the same time the Federal Government was spruiking a similar local product.

Key points: A Finnish company supply 41 inflatable boats for Australia's offshore patrol vessels

A Finnish company supply 41 inflatable boats for Australia's offshore patrol vessels The $55 million contract has annoyed senior figures within the Federal Government

The $55 million contract has annoyed senior figures within the Federal Government Defence defends the contract as delivering the best design, cost, risk and timing

In a decision that has caused "considerable friction" within the Morrison Government, the Defence Department last month confirmed it would purchase 41 Finnish rigid-hull inflatable boats (RHIBs) to be placed on Australia's next fleet of offshore patrol vessels.

The Royal Australian Navy's contract with Finland's Boomeranger Oy company was finalised without a competitive tender during October's PACIFIC 2019 military trade show in Sydney.

Defence Industry Minister Melissa Price had earlier visited the international maritime exhibition to promote Australian companies, and to publicly unveil a new locally designed tactical watercraft known as "Whiskey Alpha".

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Military sources, who spoke to the ABC on the condition of anonymity, conceded the RHIB contract had caused "considerable" consternation within the Defence Department and annoyed senior figures in the Federal Government.

However, Defence is standing by its purchase of the Finnish military boats, despite similar vessels being produced by several Australian companies, including one business in the Prime Minister's Sydney electorate.

For over a decade, Britton Marine Systems, based in Scott Morrison's seat of Cook, has supplied tactical watercraft to defence and law enforcement agencies.

In a statement to the ABC, Defence insisted its decision was based on "design, cost, risk and schedule considerations".

Defence said the RHIB program would include "opportunities to improve Australian industry content".

"Opportunities exist for Australian industry in relation to managing delivery and acceptance of the sea boats, as well as provision of training, warranty, and in service support," the department said.

Shadow Defence Minister Richard Marles was left shocked by the decision and criticised the Morrison Government.

"This Government has no genuine commitment to Australian defence industry. It has never had a strategic rationale for pursuing it. I literally had no idea. This decision is breathtaking," he said.

Aussie ships bound for Chile?

While Australia is buying up on Finnish boats, it is looking to offload two Royal Australian Navy Adelaide-class frigates, the HMAS Melbourne and HMAS Newcastle.

The ships, which have been in service for three decades, have attracted interest from foreign buyers and Chile has sent a naval delegation to Australia to look at the vessels, although the Department of Defence would not confirm the interest of the South American country.

"The Department of Defence has been approached by a number of foreign governments in relation to the remaining two Adelaide-class frigates," a Defence spokesperson told the ABC.

"Defence treats all such enquiries as in-confidence, therefore will not comment on the details of these engagements."