The Turnbull government should exercise its freedom of navigation rights in the South China Sea, according to the former head of the Defence Department, who said the rhetoric towards China had become "overblown", but Beijing needed to accept this after it "overstepped" by interfering in Australia's domestic affairs.

Dennis Richardson, who retired from Defence last May after a career which also saw him head the country's top spy agency, urged Canberra to sail within 12 nautical miles of China's man-made islands in the disputed territory of the South China Sea.