Prime Minister Malcolm Turnbull is urging China to refrain from coercive action following an international court ruling on the South China Sea.
Mr Turnbull says the decision by the Permanent Court of Arbitration in The Hague declaring China having no historical title over the sea must be respected by both sides.
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"There is so much at risk in the event of conflict, in the event of heightened tensions, so this is an important decision," he told reporters in Canberra on Wednesday.
Foreign Minister Julie Bishop criticised a call from Labor urging Defence to conduct freedom of navigation exercises.
It would lead to an escalation of tensions.
"I think that's a highly irresponsible call at this point," she said.
James Brown, the Research Director of the US Studies Centre at the University of Sydney, said tensions between international forces stationed in the area have been on the rise.
"The US 7th fleet and China's navy are shadow boxing each-other in the South China Sea," he said. "Coast guards from a range of countries are ramming into each-other in some cases.
Aircraft are buzzing each-other at a range of meters.
"When you have aircraft and ships operating in such close proximity the potential for mistakes and miscalculations is very real. The trend-lines on this at the moment aren't good. The fact that we could see some sort of skirmish between these forces over the South China Sea is real."
Dr Euan Graham from the Lowy Institute for International Policy said all sides should take their time digesting the findings and considering their next move - particularly with new political cycles beginning in Australia and the Philippines.
But in supporting the Hague's decision, Dr Graham said Australia faced a diplomatic balancing act.
"We shouldn't be overly reticent about showing public support," he said. "But I think it should be done so in a way that it doesn't look like the United States is asking Australia to do X, Y or Z.
"It should be done in Australia's own terms to send a national signal this is not just an American-led play but it's an international concern."
China vows to protect sovereignty
China has vowed to take all necessary measures to protect its sovereignty in the South China Sea and says it has the right to set up an air defence zone, after rejecting an international tribunal's ruling that denied its claims in the region.
State media called the Permanent Court of Arbitration in the Hague a "puppet" of external forces, after it ruled that China had breached the Philippines' sovereign rights by endangering its ships, and fishing and oil projects.
China has repeatedly blamed the US for stirring up trouble in the South China Sea, where its territorial claims overlap in parts with Vietnam, the Philippines, Malaysia, Brunei and Taiwan.
"China will take all necessary measures to protect its territorial sovereignty and maritime rights and interests," the ruling Communist Party's official People's Daily said in a front page commentary on Wednesday.
The case, overseeing an energy-rich region that is home to also one of the world's busiest trade routes, has been seen as a test of China's rising power, and its economic and strategic rivalry with the US.
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Beijing called the Philippines claims of sovereignty in the South China Sea "baseless" and an "act of bad faith".
In a government white paper published on Wednesday China also said its fishing boats had been harassed and attacked by the Philippines around the Spratly Islands.
"On whether China will set up a air defence zone over the South China Sea, what we have to make clear first is that China has the right to.... But whether we need one in the South China Sea depends on the level of threats we face," Vice-Foreign Minister Liu Zhenmin told reporters in Beijing, adding that China hopes to return to bilateral talks with Manila.
US officials have previously said they feared China may respond to the ruling by declaring an air defence identification zone in the South China Sea, as it did in the East China Sea in 2013, or by stepping up its building and fortification of artificial islands.
The Philippines reacted cautiously to the ruling late on Tuesday, calling for "restraint and sobriety".
Philippine President Rodrigo Duterte held a cabinet meeting after the ruling was announced, but no comment was made about the what was discussed and the presidential palace cancelled a regular briefing on Wednesday.
One of the lawyers who argued the Philippines' case said that though the decision had been delivered, how and when the country would enforce the decision was complicated and unclear.
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But in moves likely to antagonise Beijing, the coastguards of Japan and the Philippines took part in simulated rescue and medical response exercise off Manila Bay on Wednesday, part of what the two countries have called efforts to improve maritime security and combat crime and piracy.
Japan and China are involved in a separate territorial dispute in the East China Sea and Beijing has warned Tokyo against meddling in the South China Sea dispute.
Beijing's ambassador to the US earlier blamed the rise in tension in the region on the American "pivot" towards Asia in the past few years. Cui Tiankai said the arbitration case "will probably open the door of abusing arbitration procedures.
"It will certainly undermine and weaken the motivation of states to engage in negotiations and consultations for solving their disputes," Cui said at a forum of the Center for Strategic and International Studies in Washington.
"It will certainly intensify conflict and even confrontation."
President Barack Obama's top Asia policy adviser, Daniel Kritenbrink, said the United States had no interest in stirring tensions in the South China Sea as a pretext for involvement in the region.
