A group of sailors is suspected of running a drug trafficking ring out of Sydney's Garden Island naval base.
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Police and the Australian Defence Force have confirmed they are investigating allegations of "illegal activity by navy personnel" at Garden Island, which is the navy's main base in eastern Australia.
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The Australian newspaper today reported the allegations centred on a core of more than a dozen sailors who are suspected of operating a drug distribution network from the base.
A Defence Department spokesman said ADFIS - the Defence Force's investigative service - was looking into the allegations but would not confirm they were drug-related.
"As these allegations remain under investigation, it is inappropriate to comment on the specific nature of these matters," he said.
ADFIS was set up in 2006 following a recommendation handed down the previous year by a Senate committee report into Australia's military justice system.
Each arm of the defence force previously had its own separate policing capability. ADFIS operates across all three.
Its current chief is Colonel Martyn Reed.
Follow this reporter on Twitter @geerob
