Live cricket updates: Australia v India, day three, Boxing Day test at Melbourne Cricket Ground

Australia's Matthew Wade walks from the field after he was dismissed. Photo / AP

Australia face a big challenge to avoid defeat in the second cricket test against India at the Melbourne Cricket Ground after the home side suffered another batting collapse on Monday's third day of play.

India's performance represents a stunning reversal of form, following an embarrassing eight-wicket loss in Adelaide in the first test of the four-match series.

Leading by just two runs, Australia will resume their second innings on Tuesday on 133-6. Cameron Green (17 not out) and Pat Cummins (15 not out) have added 34 off 112 balls for the seventh wicket and hanging on grimly.

Second-gamer Green hit a back-foot drive through mid-off for a boundary in the final over of the day to put Australia in front, as the crowd of 24,995 found a rare reason to cheer.

Trailing by 131 runs on the first innings after India scored 326, Australia lost the wickets of Joe Burns (4) and Marnus Labuschagne (28) before tea on Monday.

A nervous-looking Burns, who has scored 0 and 4 in Melbourne, was caught behind off the bowling of Umesh Yadav.

Yadav limped off with a calf-muscle injury midway through his fourth over, depleting India's bowling attack.

Labuschagne fell on 28, when he was caught at slip off the bowling of spinner Ravi Ashwin.

Australia's batting hopes initially rested with test cricket's top-ranked batsman Steve Smith. However, Smith has not reached double figures once in the series — the former test skipper was bowled around his legs by Jasprit Bumrah for eight at 71-3.

Matthew Wade was LBW to spinner Ravindra Jadeja at 98-4, after scoring 40 off 137 balls in a gritty performance. Head (17) played an ambitious shot at a wide ball from Mohammed Siraj, and was caught at second slip with the total still on 98.

Australia suffered a middle-order collapse, losing three wickets for one run, including the dismissal of Tim Paine. The skipper was caught behind off the bowling of Jadeja (2-25), following a video review.

Cummins was dropped on 11 by wicketkeeper Rishabh Pant, although it was a very difficult chance.

While India enjoyed another day of dominance, the tourists could have been in an even better position.

India were bowled out just before lunch for 326, losing their last three wickets for one run.

India's Ajinkya Rahane reaches to hit the ball during play on day two of the second cricket test between India and Australia at the Melbourne Cricket Ground. Photo / AP

Stand-in skipper Ajinkya Rahane was needlessly run out for 112, when Jadeja was seeking a single on 49. Rahane and Jadeja (57) had steered India to a first-innings advantage with their 121-run partnership for the sixth wicket.

Rahane, 32, calmly soaked up the pressure applied by Australia's bowlers in his patient, 223-ball knock, hitting 12 boundaries in his 112.

- AP