Australia will create a A$2 billion ($1.46 billion) fund to provide loans to Pacific nations to build infrastructure, Prime Minister Scott Morrison is expected to announce on Thursday, as Canberra seeks to counter China's influence in the region.
Australia and China have been vying for influence in sparsely populated Pacific island countries that control vast swathes of resource-rich oceans.
China has spent $1.3 billion on confessional loans and gifts since 2011 to become the Pacific's second-largest donor after Australia, stoking concern in the West that several tiny nations could end up overburdened and in debt to Beijing.
To counter, Morrison plans to announce that Australia will renew its focus on the Pacific, primarily through a new infrastructure fund.
"This $2 billion infrastructure initiative will significantly boost Australia's support for infrastructure development in Pacific countries and Timor Leste," according to a speech Morrison is due to deliver in the state of Queensland and seen by Reuters.
"It will invest in essential infrastructure such as telecommunications, energy, transport, water, and it will stretch our aid dollars further."
Foreign policy analysts say Australia's new infrastructure fund will test Australia's already cool relations with China, its largest trading partner.
"This announcement will be a gauge of whether Australia can improve relations with Beijing while doing things that would have previously annoyed China," said Nick Bisley, professor of international relations at Melbourne's La Trobe University.
Ties between the two countries have been strained since Australia accused China of meddling in its domestic affairs late last year.
Australia's Foreign Minister Marise Payne will on Thursday meet her Chinese counterpart in Beijing, the first visit by a senior Canberra in two years after bilateral relations soured.
Australia has already this year pledged to develop several infrastructure projects in the Pacific but it has been forced to raid its aid budget to fund the projects.
In May, Australia said it would spend about A$200 million to develop an undersea internet cables to Papua New Guinea (PNG) and the Solomon Islands amid national security concerns about China's Huawei Technologies.
Earlier this month, Australia said it would help PNG develop a naval base, beating out China as a possible partner for the port development.