Australia may be prepared to let China explore for and mine uranium, as long as the material is not used militarily.
Australia has three working uranium mines, one in a national park
Foreign Minister Alexander Downer said that, given certain conditions, there was "no reason" Chinese firms could not invest in Australian natural resources.
The comments come as the two countries are negotiating a safeguard agreement, which would allow Australia to begin exporting uranium to China.
China needs new sources of energy supplies to secure its economic growth.
Mr Downer announced in August that Australia had started negotiating a safeguard agreement with Beijing regarding future uranium exports, a sensitive issue in Australia.
But on Monday, the country's media reported that the negotiations were broader, and that China also wanted to carry out its own exploration and mining operations.
Admitting that the issue had been under discussion, Mr Downer told Australian radio on Monday: "We wouldn't be exporting any uranium to China for military purposes of any kind.
"By that I don't only mean for use in nuclear weapons, but also we wouldn't be exporting any uranium to China for use in military vessels or vehicles of one kind or another," he told ABC radio.
He also emphasised that there were still several hurdles before a definite agreement could be reached.
One problem is that the opposition Labor party, which holds office in all the country's states and territories, is opposed to opening any new uranium mines.
"If Labor changed its policy, if we had a nuclear safeguards agreement and if the Foreign Investment Review Board approved the investment then they could do it," Mr Downer said.
The sale of mining rights could prove extremely lucrative to Australia.
The country has about 40% of the world's known uranium reserves, but partly because of the ban on new mines, only three uranium mines are currently operating.
Critics of the Australian government position fear that it will be difficult to keep track of any uranium sold to China, and therefore hard to ensure it is used solely for the generation of electricity.