The Sydney Morning report said that the Morrison government and national security experts were concerned that China was using the agreement with Victoria as a propaganda win to claim the that state government had broken ranks with Australia's China policy.
Australia on Wednesday cancelled two deals struck by its state of Victoria with China on Beijing's flagship Belt and Road Initiative, prompting the Chinese embassy in Canberra to warn that already tense bilateral ties were bound to worsen.
Payne said she had made a decision to cancel four deals, including two that Victoria agreed with China, in 2018 and 2019, on cooperation with the Belt and Road Initiative, Chinese President Xi Jinping's signature trade and infrastructure scheme.
"It further shows that the Australian government has no sincerity in improving China-Australia relations", a spokesperson said in a statement.
"This is another unreasonable and provocative move taken by the Australian side against China", according to the embassy.More news: PM to front media after new positive border worker case confirmed
Senator Payne said the four agreements were "inconsistent with Australia's foreign policy or adverse to our foreign relations".
Australia on Wednesday cancelled four bilateral deals with China, Iran and Syria under new laws that give the federal government power to overrule global agreements by lower-level administrations that violate the national interest.
Victorian Premier Daniel Andrews blindsided the Federal Government when he first signed the Belt and Road deal with the Chinese government in 2018.
Seen as a bold bid by President Xi Jinping for geopolitical influence the U.S. has been particularly critical of China's so-called "debt diplomacy".
Foreign Minister Marise Payne said that four documents signed by the southeastern state of Victoria will be canceled.More news: Walter Mondale, Former Vice President and Failed Presidential Candidate, Dies at 93
The announcement came the same day a Chinese diplomat indicated that there will be no immediate thaw in ties between Beijing and Canberra.
The Chinese government also remains furious with Australia over foreign interference and investment laws and the decision to ban Huawei from the country's 5G rollout.
China has slapped tariffs on more than a dozen Australian products in what many see as punishment for Canberra's increasingly assertive stance against its largest trading partner.
China has in the past 12 months launched a series of damaging trade strikes against Australia after Prime Minister Scott Morrison called for an independent inquiry into the origins of the COVID-19 pandemic.
Payne said she would "continue to consider foreign arrangements" but expected the "overwhelming majority" would not be affected.More news: Alexei Navalny sent to prison hospital in Russian Federation
"The more than 1,000 notified so far reflect the richness and breadth of Australia's worldwide interests and demonstrate the important role played by Australia's states, territories, universities and local governments in advancing Australia's interests overseas".