The Australian Council for International Development is concerned about the riskiness of the country's new $US300-million loan to Papua New Guinea.
The loan directed to PNG for budget support was announced last week.
According to the council, it's "far from certain" whether the short-term liquidity provided by Australia can assist lasting economic reform in PNG.
As a concessional loan, it's a departure from business-as-usual for Australia's government.
But the council's Director of Policy and Advocacy said it was unclear how the heightened risk would be managed.
Bridi Rice said more transparency over the loan was required, as details about what the money would be spent on, and how it would be repaid, were unavailable.
Earlier, Australia's Minister for International Development, Alex Hawke, said the assistance reflected the Australian national interest in a stable and prosperous PNG.
According to Mr Hawke, it built on the strong economic partnership, which included support for economic reform.
He also said it would also benefit PNG and Australian businesses by increasing the availability of foreign exchange in the country and by supporting trade and investment.
In August, PNG's prime minister James Marape said his administration was seeking to refinance its entire government debt, and asked China for help.
Questioned in parliament over the loan, Mr Marape explained the aim was to be able to sustainably service the debt in the medium term, for PNG to be able to grow its economy.