Australia's premier foreign cyber intelligence agency would be enlisted to help track down online paedophiles, terrorists and other serious criminals under a proposal being developed by the Federal Government.

Key points: The Government is considering allowing the Australian Signals Directorate to spy on criminals in Australia

The Government is considering allowing the Australian Signals Directorate to spy on criminals in Australia The ASD is currently banned from hacking, disrupting and destroying criminal activity within Australia

The ASD is currently banned from hacking, disrupting and destroying criminal activity within Australia Federal Police received 17,000 referrals relating to online child exploitation material in 2019

The ABC understands the change could allow the Australian Federal Police (AFP) to call for assistance from the Australian Signals Directorate (ASD) or extend the cyber capability of the AFP.

The ASD, whose motto is to "reveal their secrets, protect our own", is restricted under legislation to hacking, disrupting and destroying foreign criminal cyber activity.

The agency is banned from spying or hacking into online systems based in Australia.

This means that if cyber spooks working for ASD come across cybercriminal activity within Australia, its work must immediately stop, no matter how serious the offence.

For example, the ASD can hunt down sexual predators using overseas networks, but it cannot spy on them if the server is based in Australia.

"At the moment, if there is a server in Sydney that has images of a five- or six-month-old child being sexually exploited and tortured, then that may not be discoverable, particularly if it's encrypted and protected to a point where the AFP or the ACIC can't gain access to that server," Home Affairs Minister Peter Dutton told the ABC.

"It can be a different picture if that server is offshore, so there is an anomaly that exists at the moment."

It is understood that the Government wants agencies to be able to develop cyber expertise or to enlist the skills of ASD by relaxing the restrictions governing the agency's remit.

While he wouldn't back the proposal outright, Mr Dutton made it clear he wants change.

"What I think is that there should be a public debate about whether we think it's acceptable for our society to tolerate the presence of these criminal networks right next door to us and yet we have no ability to do anything about it," he said.

Commissioner warns 'perverted offenders' using web to hide

The AFP received 17,000 referrals for online child exploitation material last year, compared to just 300 a decade ago.

A referral doesn't mean a single image of a child, but potentially thousands of videos and pictures of children being sexually abused.

Security agencies argue that the online world, especially the largely ungoverned "dark web", protects those attempting to do harm and interception laws have not kept up.

Publicly, the agencies and Mr Dutton have complained that warrants allowing agencies to use ASD are too restrictive and criminal networks onshore are operating with impunity.

Mr Dutton wants to bring online warrants into the 21st century to keep up with evolving technology that has made it easier for criminals to hide.

He is pushing for the online warrants to mirror the process police are able to use when searching a house.

"I want to make sure that if they [the police] can get a warrant from a court and go to a paedophile's house and search that house for material … I want to make sure we have the same power to do that in the online life of that paedophile. Nothing more, nothing less," Mr Dutton said.

AFP Commissioner Reece Kershaw said "perverted offenders" were using the dark web to evade law enforcement and commit "heinous crimes".

"We are seeing more videos, younger children … we are seeing the rape and torture of our children, all for sexual gratification," he told the National Press Club on Wednesday.

"They use the dark web like a weapon."

The search powers of AUSTRAC, the nation's financial intelligence unit that tracks money laundering and financial terrorism, allow it to conduct wide-ranging searches within strict rules to gather intelligence on an individual or group.

Mr Dutton has referred to those powers as an example of what security agencies hunting paedophiles online could have.

"[AUSTRAC chief executive Nicole Rose] has the ability to look at millions of transactions, to look for payments made from an Australian paedophile to a syndicate in the Philippines that is sexually abusing children," he said.

"She can look at the transactions and put together an intelligence picture. Nobody is asking for any more than that … it's a debate worth having."

Government close to finalising ASD's new remit

Extending ASD's powers to spy on Australians has attracted widespread criticism in recent years after News Corp reported federal departments were considering giving spy agencies greater surveillance powers.

That article led to AFP officers raiding journalist Annika Smethurst's Canberra home in June last year, more than a year after her story was published.

Government and intelligence sources insist any extension of ASD's remit would be directed at suspected serious criminal activity.

Publicly, the Government has repeatedly said it had no plans to give the spy agency mass surveillance powers within Australia.

The ABC understands that years after conversations began about how to tackle paedophiles online, the proposal is at an advanced stage within the Government.