Middle-power nations need to do more to reform flawed and failing global institutions such as the UN Security Council and the World Bank, not disengage from them, Netherlands PM Mark Rutte has told an Australian audience.

Speaking in Sydney on Thursday, Rutte said middle powers had grown safer and more prosperous under the rules-based order that emerged after the second world war, but that the 20th-century international order held structural flaws for the 21st century.

“We must modernise and improve the international system, to make it fit for purpose again,” he told the Lowy Institute.

“The fact is that our international institutions – UN, the IMF and the world trade system, as well as Nato and the European Union – all originated in a bipolar world where international relations were defined by the divisions between East and West, and rich and poor.

“That world has ceased to exist and the challenges of today’s multipolar world don’t always fit into our existing structures. Our reality has changed, but our underlying system has not evolved with it.”

Rutte said the UN Security Council, with its veto-wielding five permanent members barely reflective of modern power dynamics, and the “chaotic” World Bank, were in need of significant reform.

In many parts, Rutte’s speech echoed Australian prime minister Scott Morrison’s Lowy address of last week, in which Morrison condemned “negative globalism” and an “unaccountable internationalist bureaucracy” that was threatening to usurp national sovereignties.

“Only a national government, especially one accountable through the ballot box and the rule of law, can define its national interests,” Morrison said.

But where Morrison urged prioritising national interests above international co-operation – a move away from international institutions – Rutte counselled the opposite: the flawed international order required middle powers to be more engaged, not less, in order to bring reform.

“For middle powers like Australia and the Netherlands, working together is the best way to influence and shape international debate.

“As middle powers, we must act in concert if we want to make sure our voices are heard.”

Rutte, now in his ninth year as Dutch prime minister, cautioned against the rising tide of populism, but he conceded that centre-right and centre-left parties – the natural parties of government in most democracies – had enabled the populist rise by failing to respond to citizens’ concerns over inequality, migration, and globalisation. But he said it was in the clear national interest of middle-ranking countries to engage more closely with international institutions to reform and improve them.

“Over the past seven decades, international rules have determined how we trade, how our citizens travel, how we fight poverty and climate change, and how we resolve disputes and manage conflict,” he said in his address at the Australian thinktank.

“It’s not a perfect system – far from it – but it has made countries like Australia and the Netherlands more prosperous and secure than at any other time in our history.”

Rutte said while discussion of “the international rules-based order” might sound abstract, it had real-world ramifications, giving as an example, the shooting down of flight MH17 in July 2014, which claimed 298 lives, including 193 Dutch citizens and 27 Australians.

“When that order breaks down, the effects can be felt in the most direct and tragic way,” he said.

“A world in which ‘might makes right’ is never far away.”

Rutte said rising “great-power” tensions between the US and China were causing unprecedented strain on the international system. But the world could not treat the two countries as alike.

“We have been naive about China for too long. That doesn’t mean that we should stop dealing with China, both commercially and politically. However, we should not be naive: it is not a western country with a full democracy, a full recognition of human rights and rule of law … China is a different system.”

Rutte said, despite international criticism of US leader Donald Trump, he was a democratically elected president, and “now we have to dance with him”.

Rutte also said Trump had “a few strong points”, such as challenging China’s “developing” status under WTO rules and the failure of Nato allies to spend the mandated 2% of GDP on defence.