Vanuatu has given Australia until September 15th to remove its small contingent of federal police out of the country.
Vanuatu is reported to be threatening to expel two AusAID officials working at the State Law Office, over allegations that they spied for Canberra.
As our correspondent, Len Garae reports, the new administration of Serge Vohor is cracking down on foreign influence in Vanuatu's government...
"The Vanuatu government has been concerned that Australia does not have the right to set up an office in an independent country, apart from the defence co-operation agreement that allows the Australian government to send in military consultants to be posted - that's to our police and Vanuatu mobile force offices here; and Mr Barak Sope, the minister of Foreign Affairs, as well as the Prime Minister, have both insisted it's not the right thing to do, that you do not set up an office, a police office, in another country because the country is an independent nation."
Australia's police chief Mick Keelty says international drug syndicates could further infiltrate the South Pacific, if Vanuatu forces Australian police to leave.
Mr Keelty says international criminals are targeting the South Pacific for their drug activities, which includes setting up amphetamine laboratories.
He hopes talks will reverse the government's decision.