Alex Ryan, a mathematician with the government's Defence Science and Technology Organisation, heads a team that is working on computer software recreating swarm behaviour for use on the battlefield.
The goal is to develop swarms of small, expendable unmanned vehicles that can carry out missions in ground, sea and aerial environments too dangerous for humans.
Ryan said the scientists were using insect swarms as a template because they showed great versatility and adaptability in nature -- swarms can overcome problems they encounter in the wild even though the insects do not have the individual intelligence to come up with a solution.
"We would have thousands of these unmanned vehicles communicating with one another to carry out missions," Ryan told AFP.
"We want to give them an overall goal, as in carrying out surveillance of a region, but you don't want to tell every one of a thousand different vehicles exactly what to do, you want them to figure it out for themselves."
"That's the challenge, give them a goal then when something changes have them adapt."
The scientists are replicating swarm behaviour using complex algorithms in work Ryan described as "at the edge of chaos".
"There's a fine line between systems which are too ordered and stagnate or systems which are too chaotic and collapse into total disorder," he said.
Ryan said his team also had to attempt to modify natural swarm behaviour for military use.
"Swarm behaviour as such is not what we are after," he said. "Swarms -- like the notorious killer bees -- concentrate on attacking a single enemy in vast numbers. Our aim is rather to develop an intelligent and communicating network."
The project envisages small inexpensive drones costing about 20,000 dollars (14,000 US) each, rather than current unmanned vehicles which cost upwards of a million dollars.
The initial focus is on surveillance work but Ryan said the swarms could also be modified to carry weapons.
He said the project was 10-15 years from completion but added the time span was relatively short in military terms because acquiring new hardware normally takes at least a decade.
The project bears a striking resemblance to the 2002 novel "Prey" by Hollywood author Michael Crichton, of "Jurassic Park" fame.
In the book, scientists develop swarms of microscopic robots that duly run amok using their collective intelligence to set about killing their creators.
Ryan laughs off the prospect he could be creating a Frankenstein's monster and says fears about artificial intelligence are overstated.
"If you look at state-of-the-art artificial intelligence in the world's leading research lab, it cannot do what any two-year-old can do," he said.
Ryan said the project aimed to reduce the need to send troops into hazardous situations.
"That the driving force behind this, it's about saving lives," he said.