Treasurer Mr Wayne Swan said the Chinese firm had initially sought to acquire up to 100 per cent of the emerging West Australian miner, but had later withdrawn that application.

Sinosteel has recently acquired more than 97 per cent of another Australian iron ore miner, Midwest Corporation Ltd, which has deposits adjacent to Murchison's in the state's mid-west.

Mr Swan said the mid-west could ultimately become 'a significant new source of iron ore exports to the north Asian iron and steel markets.'

'In approving Sinosteel's application, I have determined that a shareholding of up to 49.9 per cent in Murchison will maintain diversity of ownership within the Mid-West region,' he said in a statement.

Chinese interest in Australia's resources sector has grown as it seeks to secure supplies for its rapid economic expansion in the face of steep price rises.

The Australian government has predicted Chinese investment in Australia could triple to US$30 billion ($42.8 billion) this year, with the bulk of the money expected to come from state-controlled entities.

Mr Swan said the government 'considers the development of such potentially significant new resource areas should occur through arrangements that are open to multiple investors.'

'The government welcomes foreign investment in Australia and I will continue to ensure that investments are consistent with Australia's national interest,' he said.

He said Canberra's objective was to develop Australia's considerable natural resources 'in a manner that allows Australia to remain a reliable supplier in the future to all current and potential trading partners.'

The government imposed a three-month delay on Sinosteel's bid to buy into Murchison in Jun amid speculation that it planned to limit sovereign funds - investment bodies owned by foreign governments - to 49.9 per cent stakes in local firms.

Murchison has previously said that foreign capital would be needed to develop resources in Western Australia's mid-west.

'The development of the mid-west region to date has involved significant investment from a range of international investors, including investors from Korea, Japan, Malaysia, America and China,' it said. -- AFP