Prime Minister Malcom Turnbull on Tuesday announced wide-ranging reforms to tackle rising concerns of foreign interference, noting "disturbing reports" about Chinese influence.
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That came after Turnbull ordered an inquiry in June in the wake of media revelations that the nation's spy agency had warned the country's political elite two years ago about taking donations from two billionaires with links to the Chinese Communist Party.
The Chinese embassy in Canberra issued a furious response to the proposed laws Wednesday, saying Australian media had "repeatedly fabricated" stories about "so-called" Chinese infiltration in Australia.
"Those reports, which were made up out of thin air and filled with cold war mentality and ideological bias, reflected a typical anti-China hysteria and (are) paranoid," an embassy spokesperson said in a statement.
Rhetoric has escalated from inside Canberra over the past week, after a key Australian labor MP, Sam Dastyari, was forced to resign as deputy opposition whip after reports that he told a Chinese businessman his phone was likely being tapped by intelligence agencies.
The June probe said intelligence agencies had major concerns that China was interfering in Australian institutions and using the political donations system to gain access. Beijing denied the allegations as "totally groundless".
There have also been mounting concerns within Australian universities about Beijing's use of nationalist student groups to monitor Chinese students, and challenge academics whose views do not align with Communist Party doctrine.
The embassy said these reports "unscrupulously vilified" the Chinese community in Australia with "racial prejudice".
"Some Australian politicians and government officials also made irresponsible remarks to the detriment of political mutual trust between China and Australia," the embassy statement reads. "We categorically reject these allegations."
Turnbull announced a host of new initiatives Tuesday, including broadening espionage laws and a ban on foreign donations to political parties, with legislation to be introduced to parliament this week.
"We have recently seen disturbing reports about Chinese influence," he told reporters.
"I take those reports, as do my colleagues, very seriously."
Foreign interference is a "global issue", he said, adding that Russian meddling in the American political system had helped Australian foreign interference reforms gain momentum.
Beijing has long maintained a commitment to sovereign respect and non-interference throughout the allegations but on Wednesday struck a stronger tone.
"China has no intention to interfere in Australia's internal affairs or exert influence on its political process through political donations," the Chinese embassy in Canberra said.
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