Yang Hengjun, a former Chinese Foreign Ministry official, was detained in Guangzhou in January during a stopover on his way to Australia and had since been held without any charge.
"The government is very concerned and disappointed to learn that Australian citizen and academic Dr Yang Hengjun (Dr Yang Jun) was formally arrested in China on suspicion of espionage on August 23," Australian Foreign Minister Marise Payne said in a statement cited by Efe news.
"Dr Yang has been held in Beijing in harsh conditions without charge for more than seven months. Since that time, China has not explained the reasons for Dr Yang's detention, nor has it allowed him access to his lawyers or family visits," Payne said.
The Foreign Minister said she had discussed the issue twice with her Chinese counterpart, Wang Yi, and had also written to him three times to express her concern about the health and well-being of the 53-year-old academic and pro-democracy activist.
"It is important, and we expect, that basic standards of justice and procedural fairness are met. I respectfully reiterate my previous requests that if Dr Yang is being held for his political beliefs, he should be released," Payne said.
The Chinese Foreign Ministry confirmed on Tuesday that Yang was detained and was accused of espionage.
"This case is being investigated. According to law, his rights are lawfully and fully guaranteed. He is in good health condition," said Ministry spokesperson Geng Shuang.
Geng urged Australia to "respect" China's judicial process and expressed displeasure over its interference in the case.
"China is a country with rule of law and Australia should earnestly respect China's judicial sovereignty and stop interfering in China's case-handling in any form," the spokesperson said.
Yang, who worked at Columbia University and lived with his family in New York, faces between three years in prison and the death penalty if found guilty of espionage by China's opaque judicial system.
China has a long history of arresting dissidents, some of them while they are residing abroad, to later charge them with various crimes.
( With inputs from IANS )