One of Australia's largest manufacturers of baby formula will fall into Chinese hands, after Treasurer Josh Frydenberg approved a $1.5 billion takeover offer.

Key points: Bellamy's is the fourth-largest baby formula producer in Australia

Bellamy's is the fourth-largest baby formula producer in Australia The Treasurer has approved the sale with conditions, including investment in Australian facilities

The Treasurer has approved the sale with conditions, including investment in Australian facilities Mr Frydenberg rejected concerns the takeover would affect supply for Australian households

Chinese dairy giant China Mengniu launched the takeover bid for Bellamy's Australia earlier this year, as Chinese interest in Australian-produced baby products soared.

The company is one of China's largest dairy manufacturers, and is part owned by the Chinese Government's China National Cereals, Oils and Foodstuffs Corporation.

Mr Frydenberg said the Foreign Investment Review Board (FIRB) had undertaken extensive consultation about the takeover, and unanimously recommended the deal was "not contrary to the national interest".

But the Treasurer's final sign-off on the sale comes with conditions, including that the majority of Bellamy's directors are Australian citizens, the company must keep its headquarters in Australia for at least a decade, and it continues to invest $12 million in local processing facilities in Victoria.

A near-empty baby formula shelf at an Australian supermarket displays a sign restricting sale to four units per customer. ( ABC News: Brian Hurst )

Mr Frydenberg said the conditional approval meant Bellamy's could continue to support Australian jobs and customers, while also expanding its reach into Asia.

"In reaching this decision, there was appropriate consultation with the industry and understanding the dynamics of the market," he told the ABC's The World Today program.

Bellamy's is the fourth-largest baby formula producer in Australia, and was originally established as a family-owned company in Tasmania.

The conditions on the takeover were a clear indication the Government was wary of community concerns local baby formula is being snapped up by Chinese customers.

Videos of Chinese personal shoppers, known as daigou, snapping up baby formula in Australia to send back to China went viral online, as local stores imposed limits on how many tins could be purchased in one transaction.

The deal will be formally presented to Bellamy's shareholders for approval next month.

'This looks like manipulation by a foreign government'

It is the second large dairy business based in Tasmania to be sold to Chinese buyers, after the Van Diemen's Land Company changed hands in 2016.

Tasmanian Greens senator Peter Whish-Wilson claimed that undermined the local dairy industry, as the new owners had not honoured commitments to keep on local staff.

"The Treasurer has approved the sale of Bellamy's to Chinese interests, but he's put enforceable conditions on that sale, and they've never done that before," Senator Whish-Wilson said.

"This is a precedent, and at least they've listened to the Greens and others who have been campaigning that our foreign investment laws haven't been worth the paper they're written on if the Government isn't prepared to put enforceable conditions in place."

Mr Frydenberg promised Treasury officials would monitor China Mengniu's compliance with those conditions.

"And if these obligations are not met from foreign investors, then there are strict penalties that apply," he said.

"Ultimately, there is also the option to seek divestment, but that is of course a sanction of last resort."

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 10 minutes 37 seconds 10 m The Daigou Channel: How shopping for baby formula has shaken up global trade.

More than a decade ago, a baby formula contamination scandal in China killed six babies and hospitalised tens of thousands.

Senator Whish-Wilson raised concerns Bellamy's had not been granted a licence to sell its products in China since that incident, and queried the link to the takeover offer.

"This has led to a halving of their share price, they've been languishing waiting for these licence approvals," he said.

"And here we have a Chinese government competitor, owned by the Chinese Government, who's buying them at a rock-bottom price.

"You can't prove that this is manipulation, but I've certainly raised concerns that this looks like manipulation by a foreign government."

Concerns over supply in Australia

Independent Tasmanian senator Jacqui Lambie said she was concerned the sale would lead to a reduction of infant formula being available for families in Australia.

"When it comes to baby formula we have been left with less in the past," she said.

"I don't think this is a smart way forward, I don't feel this is good for our future of Australians.

"My biggest fear, like the rest of Australia, is that we are being bought by the communist Chinese and we are being bought up as soon as they open their cheque books.

"That is absolutely concerning to the future of the country when it comes to our food security and our national security."

But Mr Frydenberg rejected the senator's concerns, saying the Government was "absolutely confident that this will not affect the domestic market".

Infant Nutrition Council chief executive Jan Carey is in favour of the sale and called for calm.

"There is plenty of formula on the shelves for Australian babies," she said.

"If a consumer is looking for a particular brand, then there is always product available through the company's care line, and product is kept for them and can be delivered directly to [the] consumer."