US defence secretary Leon Panetta has raised the issue of "budget constrictions" in the face of continuing security threats, during high-level talks between American and Australian officials in Perth.

Both Australia and the US are in the process of making significant cuts to defence spending as the two nations come to terms with what Mr Panetta has previously described as the "new fiscal reality".

Defence Minister Stephen Smith was forced to hose down suggestions over the weekend that the US was unhappy with Australia's spending cuts, insisting that cutbacks will not affect international operations such as the war effort in Afghanistan.

Mr Panetta, who is in Australia for the annual AUSMIN talks between the two countries' defence and foreign affairs ministers, says both nations continue to face threats despite the budget situation.

"As we face budget constrictions in both of our countries, we still confront threats in the world - threats that are real," Mr Panetta said in his opening remarks at the talks.

"We still have to fight a war in Afghanistan and complete that mission, we still have to deal with terrorism in the world, we still have to confront the threat from North Korea in this region, (and) we have other threats around the world that are still real.

"And so our challenge is how do we ensure that we develop the kind of priorities that keep us strong, so that we can confront those challenges, protect our countries, and advance peace and prosperity in this region.

"Our biggest challenge now, as we rebalance to the Pacific, is to try to work with allies like Australia to try to help us in that effort so that we can do everything possible to promote security."

The Australian Government has faced domestic criticism of its decision to slash billions of dollars in defence spending.

'Financial pressure'

This morning, Mr Smith again said he would like to boost the defence budget, but that Australia was not alone in having to impose tighter restrictions on spending.

"I would obviously prefer (defence spending) to be closer to 2 per cent of GDP than the 1.6 per cent we're at now," Mr Smith told ABC local radio.

"Whatever financial pressure we're under in terms of defence budget, we've made sure that we ring-fence our overseas operations so we don't have adverse implications for that... (and) we've also made sure that we ring-fence the activity that we do with the United States."

The two defence ministers have been joined by US secretary of state Hillary Clinton and Australia's Foreign Affairs Minister Bob Carr as part of the AUSMIN talks.

The meeting is focusing on greater opportunities for defence cooperation between the two countries, including more regular visits by US forces at the Stirling naval base in Perth.

Mr Smith says today is only the beginning of that discussion, so it is likely to be some time before that happens.

"In my view, it'll occur as sure as night follows day, but it's not going to occur in weeks and months, it's going to occur in years or decades," he said.

"The reason there'll be more visits is because as the Indian Ocean grows in importance, there'll be more activity and that'll come from India, it'll come from Indonesia, it'll come from Australia."

Last year's talks resulted in an agreement to host US Marines in Darwin.

The US has been clear in its desire to increase its focus on the Asia-Pacific, sparking concern among some commentators about how that would work with China's growing influence in the region.

Mrs Clinton last night said the US wanted to help support the peaceful rise of China, as it becomes a more responsible stakeholder in international affairs.