Outspoken Australian tycoon Clive Palmer has labelled the Chinese government "mongrels" who "shoot their own people" in a televised tirade that was criticised by Canberra Tuesday as "hugely damaging".

The billionaire politician, who was elected to parliament last year as head of the Palmer United Party and is known for his efforts to rebuild a replica of the Titanic, also called the Chinese "bastards" who "want to take over this country".

The flamboyant mining baron is locked in a long-running dispute over royalties and port operations with Hong Kong-based Citic Pacific relating to its Sino Iron magnetite project, a partnership with China's state-owned Metallurgical Group Corporation.

State-owned Citic is mining for magnetite iron ore on Palmer's sprawling Australian Mardie Station cattle farm under a 25-year lease.

But the two sides have clashed over what share of the proceeds are owed to the Australian businessman and whether his company, Mineralogy, is the legal operator of the project's export terminal at Port Preston.

Citic has also accused Mineralogy of siphoning off millions of dollars from a business bank account to fund Palmer's election campaign.

The mogul denies the allegations and told the Australian Broadcasting Corporation's live Q&A current affairs panel discussion late Monday that he was "owed about Aus$500 million (US$465 million) by the Communist Chinese government".

"We'll be suing them and they'll be answering the questions," he said.

"We've had three judgements in the Federal Court and the Supreme Court of Western Australia and an arbitration against these Chinese mongrels -- I'm saying that because they're Communist, they shoot their own people, they haven't got a justice system and they want to take over this country.

"And we're not going to let them," he added.

"The Chinese government wants to bring workers here to destroy our wage system... they want to take over our ports and get our resources for free.

"So far they've shifted Aus$200 million worth of iron ore out of this country without paying for it. I don't mind standing up against the Chinese bastards."

Earlier this year, Citic Pacific president Zhang Jijing warned that legal issues with Palmer could have broader implications for Chinese business in Australia.

- 'Offensive, unnecessary, and unacceptable' -

Meanwhile, Palmer's comments provoked outrage on Chinese social media.

One user of Sina Weibo, a Chinese equivalent of Twitter, said he was "using nationalism and chauvinism to stir up Australian hostility to China, which could help cover up the truth that he stole money from Chinese companies to win the vote".

As he faced a storm of criticism, Palmer attempted to backtrack in a tweet Tuesday that said: "My Q&A comments not intended to refer to Chinese people but to Chinese company which is taking Australian resources & not paying."

Foreign Minister Jule Bishop called his outburst "offensive, unnecessary and unacceptable for a member of parliament" while Treasurer Joe Hockey said the comments were "hugely damaging" to the country's largest trading partner.

"Ultimately he is a big beneficiary of a Chinese investment partner, someone who has paid to help him develop his resources," Hockey said.

"He is in a very obvious legal dispute with his Chinese partners, but I'd say this to Mr Palmer -- please do not bring down the rest of Australia because of your bias."

One of the tycoon's Palmer United Party senators came to his defence, with Jacqui Lambie telling reporters China was led by "an aggressive, anti-democratic, totalitarian government".