Beijing: Chinese buyers of new homes in Sydney and Melbourne dominated foreign investment in Australia last year, the Foreign Investment Review Board annual report says.

The $55 billion increase in all approved foreign investment in Australia, to $248 billion, was "predominantly driven by increased investment in the real estate sector", FIRB chairman Brian Wilson wrote in the report released on Tuesday.

Chinese buyers invested $31.9 billion in real estate in Australia last year, the Foreign Investment Review Board says.

China was the largest source of foreign investment ($47.3 billion), of which $31.9 billion was investment in real estate.

The large number of applications for FIRB approval in 2015-16 (41,445) were "largely driven by residential real estate transactions", Mr Wilson wrote.