"The team of 30 Dutch forensic experts currently has no safe passage to the crash site," the department said in a statement.
"Because of fighting in the region the situation is still too unstable to safely go to the crash site to work."
The Dutch and Australians are remaining in the the rebel stronghold of Donetsk some 60km from the site.
OSCE monitor Alexander Hug confirmed there was fighting going on and said the Dutch-led team would try again to reach the site on Monday.
"We can't take the risk," Mr Hug said.
"The security situation on the way to the site and on the site itself is unacceptable for our unarmed observer mission."
Prime Minister Tony Abbott earlier yesterday admitted the mission was risky.
"Our objective is to get in, get cracking and to get out," he told reporters in Canberra.
Rebels have previously limited foreign access to small numbers of investigators and observers but Mr Abbott revealed that "full and frank talks" in Donetsk on Saturday had led to the universal view there should be a ceasefire at the crash site while the mission conducted its work.
While not referring directly to the separatists, Mr Abbott said "local people" had guaranteed the mission's security.
"(But) frankly, we need to be prepared to take some risks in order to do the right thing by our dead and by their grieving families," he said.
Mr Abbott noted there had been a "fair bit of goodwill" from locals in the area, especially since a UN Security Council resolution called for an independent investigation.
The common feeling was that the bringing down of the Malaysia Airlines plane by a surface-to-air missile, killing all 298 people aboard, was "dreadful beyond words".
The mission will not be backed up by military personnel although the Australian Defence Force is providing some enabling support including medical and surgical teams.
The 170 AFP officers in Ukraine will likely be rotated through the site as needed during the next few weeks.
Mr Abbott said it was clear the crash site still contained unrecovered human remains.
So far 227 coffins containing an unknown number of victims have been taken from the site for identification in Hilversum, near Amsterdam.
One person, a Dutch citizen, has been formally identified.
The unarmed nature of the humanitarian mission to the site means it doesn't need the specific approval of the Ukrainian parliament.
But Foreign Minister Julie Bishop hopes a deal can be ratified early this week that would allow Canberra to send a small contingent of armed police and soldiers to help with security.
Ms Bishop stressed on Sunday the mission would be a non-threatening operation.
"All we want to do is secure the site so that we can inspect it thoroughly and bring back any remains," she said.
The prime minister's special envoy, Angus Houston, said the mission would be a "non-aggressive, non-threatening force" so that no nobody would interfere with it.
Labor leader Bill Shorten, who was briefed by Mr Abbott on Sunday, offered the government the opposition's full support for the mission.
"In a dangerous and volatile environment, this is the most sensible course of action," he said.
- AAP
