The company withdrew the bid before it was formally knocked back by the FIRB.

The decision,first reported byThe Australian Financial Review,risks further inflaming tensions between Canberra and Beijing after relations between the two countries descended to their worst levels in decades in 2020.

China slapped billions of dollars of tariffs on Australia last year after the Morrison government pushed for an independent inquiry into the origins of the coronavirus.

Mr Frydenberg did not comment on the decision.

"The government does not comment on the application of the foreign investment screening arrangements as they apply or could apply to particular cases,"he said.

FIRB's guidance to the industry points out that construction firms often hold contracts with government agencies and providers of critical infrastructure. It notes that commercial construction firms that develop assets for these clients might have significant access to sensitive information,such as building blueprints and supply chains.

"Such information may be of value to foreign intelligence services,"the FIRB says.

"Foreign intelligence services may also pre-position for future intelligence activities – such as by building surveillance equipment into the premises during construction,in order to gather information on intended sensitive tenants."

According to Probuild,more than 90 per cent of its work in the past has been for private sector clients.

The company,which has an annual turnover of more than $2 billion,last year completed the build of Melbourne CBD's tallest apartment building,Aurora Melbourne Central.

This masthead last year revealed the FIRB wasbracing for Chinese takeover bids of distressed Australian assets during the global pandemic.

The concerns sparked Mr Frydenberg to slash a key takeover threshold from $1.2 billion to zero in order toensure any overseas bid could be blocked at his discretion after scrutiny by federal officials.