Australia is considering buying top-secret technology from Japan to build a fleet of next-generation submarines, a move that would risk reigniting diplomatic tensions with China that have only recently died down.

China and Japan are competing to build up their domestic arms industries, and for China, the export of Japanese military technology is particularly sensitive given their wartime history and territorial disputes. Choosing Japan to play a role in the multibillion-dollar submarine project could prompt a stern response from Australia's biggest trading partner.

Australian Defence Minister David Johnston has confirmed "unsolicited proposals" to build the submarines had been received from Japan, Germany, Sweden and France, with a decision on replacing the country's aging diesel-powered submarines expected by March. Alongside Australia, countries such as Vietnam and India are expanding their submarine fleets as China seeks greater military clout in the Pacific.