During a national security statement to parliament Prime Minister Malcolm Turnbull said that the government is looking at ways security agencies' can counter the use of encrypted communications channels by terrorists.
Turnbull addressed parliament on Australia's response to recent terrorist attacks overseas, including a series of attacks in Paris that left 130 people dead.
ASIO and the Australian Federal Police have advised the government there is no evidence that the recent attacks will materially affect the threat level in Australia, the PM said.
"But we are constantly on the watch for any evolving or emerging threats," Turnbull added.
"Rapid developments in communications technology present both opportunities and challenges for our agencies," the PM said during his House of Representatives address.
"Modern messaging and voice applications are generally encrypted in transit."
"Human intelligence, relationships with communities are more important than ever," Turnbull said.
"I have, therefore, asked that ASIO and other relevant agencies work with our international intelligence partners to address the challenge of monitoring terrorist groups in this new environment."
Turnbull's comments come as politicians in a number of Western nations have seized on terrorist attacks in Europe, Africa and the Middle East to push for increased law enforcement access to encrypted communications.
Read more: Security firm ScramCard to target Australia
There is a challenge to strike the "right balance of protecting privacy and security," Hillary Clinton, who is currently leading the race for the Democratic Party presidential nomination, said in a recent speech to the Council on Foreign Relations in the US.
"Encryption of mobile communications presents a particularly tough problem," Clinton said.
"We should take the concerns of law enforcement and counter-terrorism professionals seriously. They have warned that impenetrable encryption may prevent them from accessing terrorist communications and preventing a future attack."
"On the other hand we know there are legitimate concerns about government intrusion, network security, and creating new vulnerabilities that bad actors can and would exploit," Clinton said.
"So we need Silicon Valley not to view government as its adversary. We need to challenge our best minds in the private sector to work with our best minds in the public sector. To develop solutions that will both keep us safe and protect our privacy. Now is the time to solve this problem, not after the next attack."
Similarly former Florida governor Jeb Bush, who is seeking the Republican presidential nomination, said last month that encryption "makes it harder for the American government to do its job".
Other Republicans seeking the nomination have also talked about a need address encryption.
In the UK the government's draft Investigatory Powers Bill would place new legal obligations on companies to help law enforcement agencies bypass encryption in some circumstances.
So far is no evidence that encrypted communications were used to plan the Paris attacks, according to security expert Bruce Schneier.
The Australian government, with the support of the opposition, earlier this year legislated a data retention scheme.
That scheme covers a range of telecommunications and network metadata. However, while it captures, for example, email and VoIP services provided by Australian company, it doesn't cover identical services provided by offshore operators, including popular email providers such as Google, or popular 'over-the-top' messaging services such as WhatsApp and Wickr.