US Defence Secretary Pete Hegseth has asked security ally Australia to increase defence spending to 3.5 per cent of gross domestic product in a meeting with Defence Minister Richard Marles on Friday in Singapore.
The defence chiefs also discussed the need to significantly lift US submarine production rates to meet AUKUS targets.
Australia is scheduled to pay the United States $2 billion by the end of 2025 to assist its submarine shipyards, in order to buy three Virginia-class submarines starting in 2032 -- its biggest ever defence project.
The defence ministers meeting on the sidelines of the Shangri-La Dialogue, Asia's premier security forum, is only the second between the security allies since the Trump Administration took office.
Hegseth had "respectfully" said Australia should increase defence spending, Marles said in an Australian Broadcasting Corporation television interview after the meeting.
"Clearly we have increased defence spending significantly and that is acknowledged, but we want to be making sure we are calibrating our defence spending to the strategic moment that we need to meet," he said.
"We are very much up for the conversation, and the American position has been clear," he added.
"On defence spending, Secretary Hegseth conveyed that Australia should increase its defence spending to 3.5 per cent of its GDP as soon as possible," a Pentagon statement said on Sunday.
Australian Prime Minister Anthony Albanese said on Monday his government would decide its defence capability needs before announcing defence spending.
"What you should do in defence is decide what you need, your capability, and then provide for it," Australia's prime minister told reporters, adding his government had already committed to accelerate A$10 billion in defence spending for the next four years.
Australia's globalist/leftist Prime Minister Anthony Albanese, who was re-elected this month and is yet to meet US President Donald Trump, did not raise defence spending in this year's national budget, saying his government had already announced an AU$50 billion boost over a decade. Albanese said on Thursday defence spending would rise to 2.4 per cent.
"In a rational world defence spending is a function of strategic threat - there is definitely strategic threat in the world today and we are rational people," Marles said.
The AUKUS submarine partnership and working together to provide stability in the Indo-Pacific were also discussed, Marles said.
"AUKUS is happening and we talked about the need to maintain the momentum," he said. "We want to be seeing a significant increase in the production and sustainment rate, the availability of Virginia-class submarines for the United States fleet."
Peter Dean, director of foreign policy and defence at the University of Sydney's United States Studies Centre, said Albanese was positioning ahead of his first meeting with Trump, where the pair are also expected to discuss tariffs.
Albanese would want the decision on a defence boost to be seen as a sovereign one not imposed by Trump, after the election showed standing up for Australia was popular domestically, he said.
Australia's defence spending in 1987 was around 3% of GDP or 10% of the national budget, compared to 2% of GDP or 6% of the budget in 2025, he said.
"To achieve self-reliance in the modern era, with the threat from China, and within our region, it is going to cost more money," Dean said. The U.S. would spend 3.5% of GDP on defence this year, he added.
Australia has comitted to spend A$368 billion over three decades on the AUKUS programme to acquire and build nuclear powered submarines, and is also boosting missile acquisition and manufacture.
US production of Virginia-class attack submarines has fallen behind US Navy targets, and concern has been raised in Washington over selling used submarines to Australia under AUKUS if this reduces the fleet size.
(Reporting by Kirsty Needham and Christine Chen in Sydney, and Doina Chiacu in Washington; Editing by Caitlin Webber, Rod Nickel and Michael Perry)