Attorney-General George Brandis has questioned whether Sam Dastyari has been "compromised" in his position on China and argues the Labor senator's comments are damaging to the national interest.
Labor figures are standing by Senator Dastyari despite fresh revelations he pledged support for China's contentious territorial ambitions at a media conference with a political donor.
The shadow minister is already in hot water for having a Chinese donor pay a $1670.82 debt he incurred after exceeding his taxpayer-funded travel allowance.
Senator Brandis said the "carefully opaque way" in which the payments were declared raised questions about whether Senator Dastyari had been compromised.
"If he has been compromised that is a very grave matter," he told parliament on Thursday.
The Australian Financial Review reported the senator told a pre-election media conference, alongside a donor, the South China Sea was China's own affair.
"On this issue, Australia should remain neutral and respect China's decision," he said, according to Chinese media reports.
The coalition used Senate question time to pounce on the report, with Senator Brandis describing Senator Dastyari's comments as "potentially destabilising" and saying they had the potential to undermine efforts to have the dispute resolved according to international law.
"Whatever Sam Dastyari's motives might be, his conduct is damaging both to the credibility of the Labor party and to our national interest," Senator Brandis said.
Senator Dastyari has insisted the payment was properly declared on his pecuniary interest register and that he later donated the same amount to charity.
Senator Brandis says the senator's explanation was woefully inadequate for matters more serious than the allegations - relating to Chinese mining interests - that caused Liberal MP Stuart Robert to lose his ministerial position.
"Senator Dastyari needs to answer whether he is in fact delivering on the extensive support provided to him," he said.
Cabinet minister Steve Ciobo said Senator Dastyari should stand aside like Mr Robert did.
Former opposition defence spokesman Stephen Conroy said Senator Dastyari should "absolutely" remain in his position.
He accused the government of hypocrisy and pointed to a trip Julie Bishop took that was paid for by Chinese communications giant Huawei.
Labor frontbencher Tony Burke, while quick to defend Senator Dastyari, insisted Labor's position on the South China Sea was clear.
"All parties should respect international law and we urge restraint and that's the position and that's what the answer should have been," he told Sky News.
The Senate on Thursday passed a motion calling for a ban on foreign political donations.
