The federal government used new powers to rip up two deals made between the state of Victoria and China.
Canberra said it was backing away from the agreements to protect Australia's national interest.
The Chinese embassy in Australia branded the move "provocative".
It said the action by Canberra was "bound to bring further damage to bilateral relations, and will only end up hurting itself."
"It further shows that the Australian government has no sincerity in improving China-Australia relations," a spokesperson said in a statement.