Foreign Minister Julie Bishop insists there is no need for Australia's digital spy agency to be given new powers to spy on citizens at home.
News Corp Australia on Sunday reported the new powers, outlined in letters between the heads of the Home Affairs and Defence departments, would allow the Australian Signals Directorate's cyber sleuths to monitor Australian citizens and businesses on home soil.
But Ms Bishop denies there is a plan to increase the powers of the directorate and asked whether there should be, said "no".
"The current laws safeguard the privacy of Australians but also provide us with an opportunity to keep Australians safe," she told reporters in Cairns.
Ms Bishop spoke to her colleague, Defence Minister Marise Payne on Sunday.
"She's received no request from the defence department to change the powers of the Australian Signals Directorate as indicated in the paper this morning," she said.
"I don't see any national security gap."
Labor believes it is extraordinary the proposal has been leaked.
"There is obviously someone in the government who is very concerned about this proposal or this top-secret for Australian-eyes only document would not have been leaked," Deputy Labor leader Tanya Plibersek told the Nine Network.
Ms Plibersek said Labor was happy to work with the government on national security, but had not been consulted on this issue and needed to know why any changes would be necessary.
The ASD at present can only gather intelligence on foreigners. Only domestic spy agency ASIO and the Australian Federal Police are allowed to access information at home and then only after obtaining a warrant signed off by the Attorney-General.
Under the proposal, all the department would need would be the approval of the ministers of Defence and Home Affairs - Senator Payne and Peter Dutton - removing any judicial oversight.
"I am very concerned that superficially this looks like another Dutton power grab rather than any real effort to keep Australians safer," Ms Plibersek said.