US officials and others have long suspected that ZTE, the second-largest smartphone maker in the world, maintains ties to China's communist leaders.
"While we are protected as far as possible by current security controls, the new network, with its increased complexity, would render these current protections ineffective in 5G", the Government said in a statement.
Chinese foreign ministry spokesman Lu Kang said Australia should drop its "discriminatory measures" and instead encourage cooperation between Australian and Chinese enterprises because it benefited Australian consumers.
Acting Home Affairs Minister Scott Morrison and Communications Minister Mitch Fifield added that there was "no combination of technical security controls that sufficiently mitigate the risks".
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In a statement to Financial Times, Canberra said: "The involvement of vendors who are likely to be subject to extrajudicial directions from foreign governments that conflict with Australian law, may risk failure by the carrier to adequately protect a 5G network from unauthorized access or interference". Most notably, earlier in 2018, a deal between Huawei, AT&T, and Verizon fell through at the last minute, effectively locking Huawei out of the U.S. market. It did not specifically refer to the Chinese vendors, but Huawei's statement confirms the impact.
As Reuters highlights, Chinese law requires citizens and organizations to assist, support and cooperate with intelligence work.
"That's what you get when you have the aligned strategy of a Chinese company with the Chinese government", said John Watters, Executive Vice President and Chief Corporate Strategy Officer of cyber security firm FireEye Inc.
They did not mention ZTE or Huawei by name but said that the next stage of wireless technology poses unique national security risks, which may disqualify certain device makers from being used by the country's telecom carriers.
Turnbull's tenure as prime minister appeared doomed on Thursday as his ruling party struggled with an internecine leadership battle which saw ministers desert Turnbull and call for a leadership vote.