Daniel Edmund Duggan was arrested in Australia late last year and now faces extradition to the United States, where he is accused of violating an arms embargo.

The 54-year-old was a highly-regarded jet pilot who spent 12 years in the US Marine Corps, reaching the rank of Major and working as a tactical flight instructor.

An indictment filed in 2016 -- but only unsealed in December last year -- alleged Duggan broke US arms control laws by providing "defence services" to "Chinese foreign nationals" after he left the military.

Defence lawyer Dennis Miralis on Tuesday said Duggan's "arbitrary" arrest appeared to be an attempt by Washington to gain leverage over China.

"It seems to us that this indictment was brought when the US was entering a period of geopolitical tension with China," he told reporters after a brief court hearing in Sydney.

Miralis added that Duggan disputed the allegations, and was "not eligible for surrender because of the political nature of this indictment".

- 'Set for life' -

The US government alleges Duggan was paid more than Aus$110,000 (US$75,000) to train "PRC military pilots" between 2010 and 2012.

Duggan trained the pilots in China and at a test flying academy in South Africa, according to the indictment, and hoped his children would be "set for life as a result".

He was headhunted as an instructor because he had experience in "naval aviation" to "NATO standards", the indictment read.

The father of six moved to Australia in 2002 after leaving the Marines, gaining citizenship and working in an adventure flight company called Top Gun Tasmania.

Australian company records indicate Duggan moved to Beijing around 2014.

Duggan returned to Australia in October last year, and was arrested a few weeks later at the request of the US government.

He has since been classified as an "extreme high-risk restricted inmate", according to Miralis.

Duggan's wife Saffrine has launched an online petition urging Australia's attorney-general to release her husband and block his extradition.

"Daniel now finds himself a victim of the United States Government's political dispute with China, by no fault of his own," she wrote.

"Daniel is being targeted for having renounced his United States citizenship."

Duggan was arrested in the same week that Britain and Australia issued warnings about China's attempts to recruit retired military pilots.