Heavily-armed commandos have responded to a suspected drug-smuggling ship sailing off the New South Wales coast.

The elite soldiers were on board the Navy's guided missile frigate HMAS Newcastle, which had been tasked by Border Protection to help with the operation.

Defence sources have told the ABC the target vessel is believed to be an Australian chartered Chinese ship which is using Vietnamese crew.

The incident is reminiscent of the 2003 military takeover of the North Korean cargo ship Pong Su, which was intercepted and its crew arrested for attempting to smuggling heroin into Australia.

Defence Minister Marise Payne said investigations were ongoing.

"My understanding is it's a police operation with ADF support and as they are operational matters I won't expand on that," she said.

The Australian Federal Police said in a statement they were aware of a police operation in the Sydney area, and media reports about a ship being sent "to intercept a suspected drug-smuggling boat".

"This activity is not related to any national security matters, or any current or impending threat to the community," the statement said.

"As this matter is ongoing, it is not appropriate to provide further comment."