Australian officials say they were not aware how heavily the US was pressuring Nauru to abandon its policy of selling passports as a revenue-raising exercise.
The Australian newspaper said Nauru scrapped the sales after pressure from Washington, which feared the scheme was being used by al-Qaeda members.
The US had reportedly warned that it would shut down Nauru's economy if it did not cooperate.
The paper now says Australian federal government sources were surprised at the US tactics.
The opposition foreign affairs spokesman, Kevin Rudd, accused the government of going soft on Nauru because of its role in the Australian asylum policy.
Australia has detention centres in Nauru where it has been holding hundreds of Middle Eastern asylumseekers and refugees since 2001.