"I honestly think it's just speculative," Morrison told Sydney Radio 2SM. "It's just people flying some kites and I'm not going to overreact to the noise that is flying around out there."
"I speak pretty regularly with the Prime Minister of Papua New Guinea [James Marape] and we have a very good relationship and he well understands our relationship and the importance of our other partners and I couldn't see Papua New Guinea being terribly hasty on anything like that."
Marape's office said the Prime Minister wasn't aware of the proposal, but added that his government would not turn away foreign investment that complied with Papua New Guinea laws and benefited locals.
Analysts have said the proposal makes no economic sense and some suspect China wants to build a wharf for use by its navy.
The United States and Australia are partnering to redevelop Papua New Guinea's Lombrum Naval Base on Manus Island in the country's north as concerns rise about China's growing influence in the region.
In November last year, Papua New Guinea signed a memorandum of understanding with Chinese firm Fujian Zhonghong Fishery Company to build a $160 million fish processing plant also on Daru.
Home Affairs Minister Peter Dutton said the government was "very keen" to discuss with Papua New Guinea "what proposals are on the table".
"I think there are all sorts of sovereignty issues and there are local issues in terms of land owners and land rights etc, that I think would provide a significant hurdle," Dutton told Nine Network television on Friday.
"So, we'll look at it closely, but Australia will always act in our best interests and ... to support our neighbors," he added.
Papua New Guinea is the largest recipient of Australian foreign aid. Papuan vessels can operate in a shared fishing zone between the two neighbours under a treaty that recognises the trade and family links between the Torres Strait island communities that have existed for thousands of years.
- AP
