Australia's set to launch a two billion dollar fund for small countries in the Pacific, to counter China's rising influence in the region.

The fund was launched by Prime Minister Scott Morrison on Thursday (November 8).

It's set to be a combination of grants and low interest loans to build infrastructure.

And it comes as Australia tries to push back on China's rising influence in small but strategically located countries like Papua New Guinea and the Solomon Islands.

The region's only sparsely populated but these island states control vast waterways rich in natural resources.

Morrison made the pitch for Pacific influence at a military base on Australia's northern coast.

(SOUNDBITE) (English) AUSTRALIAN PRIME MINISTER SCOTT MORRISON SAYING: "This is our patch.

This is our part of the world.

This is where we have special responsibilities, we always have, we always will.

We have their back and they have ours" The PM didn't name China, but analysts say there's little doubt about who the policy's aimed at.

Beijing's quickly become the second largest donor in the Pacific, spending $1.3 billion in its own loans and gifts here since 2011.

That's second place - right after Australia.

And the diplomatic tug of war has been playing out at an increasingly rapid pace.

In Papua New Guinea, Beijing's recently refurbished a convention center and funded a major boulevard in the capital, to spruce things up before PNG hosts Asian leaders at the APEC summit.

In May, Australia coughed up $145 million dollars for an undersea internet cable to both PNG and the Solomon Islands, to edge out China's Huawei.

And just last week Canberra said it would help PNG develop a naval base beating China to the punch.

Also on Thursday during the first visit by an Australian Foreign Minister to China in two years, Beijing said it believes both countries can work together across the region.