The Commissioner of the Australian Federal Police, Mick Keelty, says reports that Australia has been bugging phones in Papua New Guinea, are absolutely incorrect.
The Post Courier newspaper published the claims last week.
It quoted sources saying telephone dropouts in Port Moresby last month were caused by the AFP setting up a possible bugging system in some government departments.
Commissioner Mick Keelty says the AFP would not be party to any such unlawful activity either in Australia, in PNG or anywhere else.
The Commissioner says the timing and prominence of the fallacious and mischievous report is most unfortunate, given the AFP's contribution to the Enhanced Co-operation Programme
He says the AFP is in PNG to assist local police combat serious crime and build its capacity and is working alongside them to achieve this.
Telikom PNG has also dismissed the reports.
The PNG Internal Security Minister Bire Kimisopa also supports the commissioner, saying its absurd Australia would bug phones.
He says the timing of the allegations is obviously politicking over the planned sale of Telikom.
"Its a bad timing, we're trying to sell Telikom and the number of opposition going up and down, the opposition party is adamant Telikom shouldn't be sold. There's a fair bit of mud slinging going on the past couple of weeks."