Australia's prime minister insisted he was "not naive" to the threat of foreign interference Monday, as authorities investigated an alleged plot by China to recruit a businessman and get him elected.

Nine network programme "60 Minutes" broadcast explosive allegations Sunday night that suspected Chinese agents had offered Chinese-Australian Bo "Nick" Zhao Aus$1 million ($679,000) to run as a candidate in a federal seat in Melbourne.

The 32-year-old luxury car dealer had reportedly disclosed the alleged approach for him to spy to the Australia Security Intelligence Organisation (ASIO) last year, before he was found dead in a motel room in March.

Prime Minister Scott Morrison said Monday the allegations surrounding Zhao, a member of his Liberal Party, were "deeply disturbing and troubling".

"Australia is not naive to the threats that it faces," he told reporters in Canberra.

"And that's why we strengthened the laws, why we increased the resources... to ensure Australia was in the best possible position to deal with any threats that come our way."

In a rare public statement late Sunday night, ASIO head Mike Burgess said the agency was had been "actively investigating" the matter.

"Hostile foreign intelligence activity continues to pose a real threat to our nation and its security," he added.

Burgess said he would not comment further on Zhao's death as it was subject to an inquest.

Police have been unable to determine how Zhao died.

Parliamentary intelligence committee chief Andrew Hastie described the alleged episode in Melbourne as "surreal" and "like something out of a spy novel".

"This isn't just cash in a bag, given for favours, this is a state-sponsored attempt to infiltrate our parliament using an Australian citizen and basically run them as an agent of foreign influence in our democratic system," he told 60 Minutes.

"So this is really significant and Australians should be very, very concerned about this."

Chinese foreign ministry spokesman Geng Shuang denied the claims, accusing "some politicians, organisations and media in Australia" of "cooking up so-called China spy cases."

Some in Australia have "reached a point where they panic at the slightest move and see threats everywhere", Geng said.

But "lies are ultimately just lies", he said at a regular press briefing.

- Espionage claims -

The claims come just days after a Chinese spy reportedly gave ASIO the identities of China's senior military intelligence officers in Hong Kong and provided details about how they funded and conducted operations in the city, Taiwan and Australia.

China has tried to paint defector Wang "William" Liqiang as an unemployed fraudster and fugitive, but there are growing calls in Australia to grant him political asylum.

The revelations are likely to heighten tensions between Beijing and Canberra.

Geng dismissed the allegations as a "clumsy farce" and a fabrication.

Recently retired ASIO chief Duncan Lewis said last week that China wanted to "take over" Australia's political system with an "insidious" and systematic campaign of espionage and influence peddling.

China is also widely suspected of being behind major intrusions into the computer systems of Australia's parliament and a university with close ties to the government and security services.

But Beijing has previously angrily denied allegations it was covertly meddling in Australian affairs.

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