Australia was Tuesday investigating whether Pacific microstate Nauru breached a security treaty by inking a lucrative business deal with a Chinese company.

Nauru last week announced it had signed a US$650 million economic development agreement with the China Rural Revitilisation and Development Corporation.

Australian Minister for Pacific Island Affairs Pat Conroy said officials were looking into whether that deal complied with a recent security pact between Canberra and Nauru.

"(Australia) is engaging with the government of Nauru about whether it activates parts of our treaty," Conroy told reporters.

"That is a really important treaty for us -- that helps position us as a security partner of choice with Nauru."

Australia and Nauru announced a landmark security treaty in December last year, advancing Canberra's aim of blunting China's growing regional influence.

Under the deal, Nauru must seek Australia's agreement before it signs any bilateral accords on maritime security, defence and policing.

Nauru also agreed to consult Australia if other parties look to strike agreements granting them access to critical infrastructure such as ports and airfields or its banking sector.

In return, Nauru receives tens of millions of dollars to prop up its government budget and bolster its stretched police force.

Nauru last year surprised many Pacific watchers when it abruptly severed diplomatic links with Taiwan in favour of Beijing.

Nauru's Foreign Affairs Minister Lionel Aingimea travelled to Beijing to sign the business deal last week.

The China Rural Revitilisation and Development Corporation agreed to invest in key sectors such as agriculture and fisheries, according to a Nauru government release.

Nauru, population 12,500, is one of the world's smallest countries with a mainland measuring just 20 square kilometres (7.7 square miles).

It is considered especially vulnerable to climate change.

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