Scott Morrison has urged the United States and China to respect international laws and resolve their disputes peacefully.
The prime minister said both countries had a "special responsibility" to uphold the rules underpinning society.
"It means a commitment to rules-based economic interaction. Neither coercion nor abdication from international systems is the way forward," he said on Wednesday.
In a major speech to the Aspen Security Forum, Mr Morrison welcomed China's rise but said the country had a role to play "commensurate with its new status".
He said the rising power needed to take responsibility for enhancing the broader global and regional interest, "rather than a narrow national interest or aspiration".
Mr Morrison said while the US had always faced these expectations, China needed to accept the same level of responsibility and both countries must play their part.
The prime minister warned the liberal rules and norms of the "American century" were under assault and international society was under strain.
But rather than longing for the past, he said countries needed to accept the configuration of power in global politics had changed.
"We have to deal with the world as it is, not one we'd like it to be," Mr Morrison said.
He said Australia wanted to see international engagement framed by agreed rules and norms, "not crude economic or political coercion".
The prime minister said Australia was working with regional allies including Indonesia, India, Japan and Vietnam to ward off growing tensions in the Indo-Pacific.
"Tensions over territorial claims are growing. The pace of regional military modernisation is unprecedented. Democratic nations face new threats from foreign interference," Mr Morrison said.
"Cyber attacks are increasing in frequency and sophistication. Disinformation is being used to manipulate free societies.
"The trade rules that have allowed us to prosper have not evolved to meet new challenges. And economic coercion is increasingly employed as a tool of statecraft."
Mr Morrison said the coronavirus pandemic had been an "unmitigated calamity" for the global community but had created new opportunities for like-minded countries to work together.
He said this would mean taking a more "pragmatic and rounded" approach to global and regional relations.
But he warned the goodwill could be undermined if positive political and security relationships were accompanied by abrasive or confrontational trade relationships.
"We should avoid cases where we build closer strategic co-operation, only to see the cohesiveness of those relationships undermined by trade disputes," the prime minister said.
Labor's foreign affairs spokeswoman Penny Wong says there needs to be more sensible discussion on how Australia deals with China, imploring Foreign Minister Marise Payne to lead the debate.
"Marise does need to step up more," she told Sky News.
"The absence of that means that too much of the debate is led by coalition backbenchers who seek to make their views more and more strident because they think there's some political benefit for them.
"And that's not a good thing for the country."
Australian Associated Press