A leaked attorney-general document tabled in the Senate on Tuesday showed Labor is considering giving rights holders the choice to opt-out control to stop their content being used to train AI.
It follows comments from an OpenAI executive who warned the company could not invest in training centres in Australia under the current copyright laws.
Australia's recent string of world-leading tech reform in social media spaces has made it a prime target for companies to lobby for relaxed copyright laws, according to AI expert Tony Walsh from the University of NSW.
"We're quite a cheap place to lobby for change," he told AAP.
"Not because they're particularly going to put much time or effort or money into training models here, but because it will set a very important precedent, as our laws have in the digital space elsewhere."
Professor Walsh said data centre investments have given the companies leverage to get favourable outcomes on copyright law.
Liberal frontbencher James Paterson said Australia must move fast on regulation or risk the national security benefits of hosting training centres.Â
"If we hold out for what we think is a better deal, if we wait too long, we risk missing that investment window entirely, and this sovereign AI training never coming to Australia at all in any meaningful way," he told the ABC.
But Prof Walsh said he sees "absolutely no benefit" to national security by allowing an overseas company to train their models in Australia.
He said Australia maintained a strong bargaining position as the United States faces a moratorium against new data centres in many states.
"The alternative is to build them in space, which last time I looked was a lot further away and a lot more expensive than Australia."
While the horse has bolted on AI models scraping existing content, Prof Walsh said regulation should be pursued to protect future intellectual property.
Copyright Agency chief Josephine Johnston said the increasing pressure from the likes of OpenAI reinforces the need for the government to stand strong against "unreasonable demands".
"Tech needs creative output every bit as much as it needs a favourable environment for training," she told AAP.
"It can't seek to turn Australia into the 'data laundering' centre of the world by demanding that the Government waters down our protections for creators."
Greens arts spokeswoman Sarah Hanson-Young has called for a complete pause to AI developments.
"If AI companies want to use Australian content, they need to pay for it just like everyone else," the senator said in a statement.
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