The Australian Federal Police announced the probe and is expected to interview Wang Liqiang over his claims that Chinese intelligence tried to interfere with Australian politics.
Wang fled to Australia and told local media he knew the identities of China's senior military intelligence officers in Hong Kong and took part in covert influence operations there, as well as in Taiwan and Australia.
Separate allegations that China tried to recruit a Melbourne businessman and get him elected to parliament are the subject of a coronial inquest.
The businessman Bo "Nick" Zhao - a 32-year-old luxury car dealer who was a member of the ruling Liberal Party - apparently rebuffed the offer and was found dead in a motel room in March.
'Help me': Aussie accused of spying in China pleads to return home
"The Australian Federal Police can confirm it is investigating allegations of foreign interference activities in Australia, as recently reported in the media," a spokesperson told AFP.
"As this investigation is ongoing, it would not be appropriate to comment further."
Prime Minister Scott Morrison described the allegations as "deeply disturbing and troubling".
The country's main spy agency, the Australian Security Intelligence Organisation (ASIO), said it was aware of Wang's claims and was actively investigating them.
Wang is reportedly living in Sydney with his wife and infant son on a tourist visa.
China has accused him of being an unemployed fraudster and fugitive.
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