Australia's most populous state said it will axe a Chinese-funded education programme that teaches Mandarin in schools amid fears over potential foreign influence.

The Confucius Institute programme - administered by the Chinese government agency Hanban - teaches China's official language in 13 public schools across New South Wales (NSW).

However, the NSW government said in a review issued late on Thursday that, while it found no specific evidence of interference, it was improper for the programme to continue.

"The review found, however, a number of specific factors that could give rise to the perception that the Confucius Institute is or could be facilitating inappropriate foreign influence in the department," the review said.

The government report said NSW was the only state government worldwide to have such a programme and that the arrangement also placed Chinese government appointees inside the NSW education department.

The Chinese embassy in Canberra did not respond immediately to a request for comment.

NSW Education Minister Sarah Mitchell said the programme would be replaced by Mandarin classes run by the state government.

Australia has in recent years sought to increase the teaching of Mandarin in schools in a bid to strengthen ties with its largest trading partner.

The removal of the programme comes amid heightened concerns about Chinese activities in Australia and the neighbouring Pacific region and a souring of relations in recent years.

In 2017, then prime minister Malcolm Turnbull accused China of meddling in Australia's domestic affairs, a charge that Beijing denies.

Australia then further alienated China last year when it essentially banned the technology giant Huawei Technologies Co Ltd from supplying equipment for a 5G mobile network, citing national security risks.

China criticised that move as being politically motivated and urged Australia to abandon what it described as a Cold War mentality.

Australia has also moved in recent months to push back against China's quest for greater influence in the Pacific.

Canberra fears Chinese lending in the region could undermine the sovereignty of small Pacific countries and has moved to increase economic aid and its diplomatic presence in the region.

At the same time, Australia has experienced disruption to its coal exports to China, including customs delays. China denies that Australian trade is being hampered because of bilateral tensions.