Prime Minister Scott Morrison has argued Australia's foreign policy is wrongly seen through the lens of China-US competition, needlessly damaging relations with Beijing.
In a speech to conservative UK think tank Policy Exchange, Mr Morrison said Australia wanted a transparent and mutually beneficial relationship with China.
Canberra also remains committed to the US alliance because of a shared world view, liberal democratic values and market-based economies.
"At all times we must be true to our values and the protection of our own sovereignty," Mr Morrison said.
"These are our national interests. Pursuing these interests in the midst of strategic competition between the United States and China is not straightforward."
The prime minister said pursuing Australia's goals was being made more complex by assumptions cast on its actions.
"Our actions are wrongly seen and interpreted by some only through the lens of the strategic competition between China and the United States," Mr Morrison said.
"It's as if Australia does not have its own unique interests or views as an independent sovereign state. This is false and needlessly deteriorates relationships."
Australia's relationship with China has suffered in recent years with a diplomatic row bleeding into trade disputes.
"If we are to avoid a new era of polarisation, then in the decades ahead, there must be a more nuanced appreciation of individual states' interests in how they deal with the major powers," Mr Morrison said.
"Stark choices are in no-one's interests.
"Greater latitude will be required from the world's largest powers to accommodate the individual interests of their partners and allies. We all need a bit more room to move."
The prime minister, who made the address virtually while in isolation at The Lodge, was awarded the think tank's inaugural Grotius Prize in honour of founding international law thinker Hugo Grotius.
British Prime Minister Boris Johnson also addressed the event.
Mr Morrison said he looked forward to working with the UK to make the COP26 summit next year "a major step forward in dealing with the challenge of climate change".
