Australian Defence Minister Brendan Nelson has admitted that securing oil supplies is a key factor behind the presence of Australian troops in Iraq.
Australia has about 1,500 military personnel in the Gulf
He said maintaining "resource security" in the Middle East was a priority.
But PM John Howard has played down the comments, saying it was "stretching it a bit" to conclude that Australia's Iraq involvement was motivated by oil.
The remarks are causing heated debate as the US-led Iraq coalition has avoided linking the war and oil.
Australia was involved in the invasion of Iraq in 2003, and has about 1,500 military personnel still deployed in the region.
There are no immediate plans to bring them home.
In comments to the Australian Broadcasting Corporation, Mr Nelson admitted that the supply of oil had influenced Australia's strategic planning in the region.
"Obviously the Middle East itself, not only Iraq but the entire region, is an important supplier of energy, oil in particular, to the rest of the world," he said.
"Australians and all of us need to think what would happen if there were a premature withdrawal from Iraq.
"It's in our interests, our security interests, to make sure that we leave the Middle East, and leave Iraq in particular, in a position of sustainable security."
This is thought to be the first time the Australian government has admitted any link between troop deployment in Iraq and securing energy resources.
But Prime Minister John Howard was quick to play down the significance of his defence minister's comments.
"We didn't go there because of oil and we don't remain there because of oil," he told a local radio station.
"A lot of oil comes from the Middle East - we all know that - but the reason we remain there is that we want to give the people of Iraq a possibility of embracing democracy," he added.
Opposition politicians, though, have chastised Mr Howard's government over the comments.
"This government simply makes it up as it goes along on Iraq," Labor leader Kevin Rudd told reporters.
Anti-war protesters say the government's admission proves that the US-led invasion was more of a grab for oil rather than a genuine attempt to uncover weapons of mass destruction.
But ministers in Canberra have brushed aside the criticism, saying they remain committed to helping the US stabilise Iraq and combat terrorism.
They have also stressed that there will be no "premature withdrawal" of Australian forces from the region.