China's Belt and Road Initiative deals are "used for propaganda", a top Australian official said Thursday as he defended Canberra's decision to scrap a state government's deals with Beijing.

Australia on Wednesday overruled Victoria state's decision to join the Belt and Road Initiative (BRI) -- the flagship of President Xi Jinping's geostrategic vision for the Asia-Pacific region -- saying the agreement was inconsistent with Australia's foreign policy.

As relations between the two countries continue to nosedive, Defence Minister Peter Dutton said Canberra was "worried" about local governments entering into such agreements with Beijing.

"We can't allow these sort of compacts... to pop up because they're used for propaganda reasons and we're just not going to allow that to happen," he told local radio.

Dutton said the government's problem was not with the Chinese people but rather "the values or virtues or the outlook of the Chinese Communist Party".

Australia last year enacted new powers -- widely seen as targeting China -- that allow it to scrap any agreements between state authorities and foreign countries deemed to threaten the national interest.

Canberra's first target was the BRI, a vast network of investments that critics say is cover for Beijing to create geopolitical and financial leverage.

As relations between the two countries continue to nosedive, a top Australian official said Canberra was "worried" about local governments entering into such agreements with Beijing
As relations between the two countries continue to nosedive, a top Australian official said Canberra was "worried" about local governments entering into such agreements with Beijing AFP / FREDERIC J. BROWN

In a statement released early Thursday, the Chinese embassy in Australia called it a "unreasonable and provocative" move.

"It is bound to bring further damage to bilateral relations, and will only end up hurting itself," the statement added.

Dutton said he would be "very disappointed" if China retaliated but retorted that Australia "won't be bullied by anyone".

"We are going to stand up for what we believe in and that's exactly what we've done here," he said.

China has already slapped tariffs on more than a dozen Australian industries, including wine, barley and coal, in what many see as punishment for Canberra's increasingly assertive stance against its largest trading partner.

Australia infuriated China by calling for an independent probe into the origins of the coronavirus pandemic, banning controversial telecoms giant Huawei from building Australia's 5G network and tightening foreign investment laws for corporations.

Other agreements between foreign powers and local governments are still under consideration, and Canberra could yet target the presence of Chinese government-backed Confucius Institutes at Australia's public universities.

Critics said the institutes, which have been the subject of controversy on some campuses, promote the Communist Party's self-serving version of Chinese culture and history.