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Prime Minister Scott Morrison is demanding confirmation China has banned Australian coal, warning the world is closely watching the worsening trade dispute.

The Australian government has not received formal notification of the coal ban, instead finding out through Chinese state-owned media.

Australian authorities are now scrambling to stack up the reports.

“Until we are in a position to have that clarified then we can only treat this as media speculation,” Mr Morrison told reporters on Tuesday.

“If that were the case, then that would obviously be in breach of WTO rules, it would be obviously in breach of our free trade agreement, and so we would hope that is certainly not the case.”

Mr Morrison said if the Chinese government did confirm the coal ban, it would have to source dirtier coal from other countries, describing it as a lose-lose.

He said other countries were watching the dispute, warning China would create uncertainty if it conflated trade and diplomatic disputes.

“If a perception emerges that there is a conflation between political issues and a trading relationship then that can create uncertainty for many trading partners,” Mr Morrison said.

“I’m sure that isn’t something China is hoping to achieve here.”

He noted India and Japan were also large buyers of Australian coal, meaning the industry had a diverse customer base.

Trade Minister Simon Birmingham says the reports are worrying.

Dozens of ships carrying Australian coal have been stranded off the coast of China for months due to supposed environmental problems.

But overnight, The Global Times reported Chinese power plants had been directed to stop taking Australian coal.

“We see these reports and obviously are deeply troubled by them,” Senator Birmingham said.

“They, if true, would indicate discriminatory trade practices being deployed by Chinese authorities and we would urge them to rule that out swiftly.”

Labor resources spokesman Ed Husic said coalmining communities across Australia depended on exports to China.

Mr Husic said the government needed a game plan to repair the heavily strained relationship.

Australian exporters heavily reliant on China have been brought to their knees by deteriorating trade ties.

China has launched trade strikes and sanctions against a range of Australian goods including beef, barley, wine, seafood and timber.

Senator Birmingham said he could understand if Australian companies looking to do business in China were more sceptical about entering into contracts.

The trade tensions stem from China’s grievances with Australia’s foreign investment and interference laws, banning Huawei from the 5G network, and demanding a global inquiry into the origins of coronavirus.

Almost half of respondents to a Guardian Essential poll think Australia needs to back away from its close relationship with China after months of escalating rhetoric and economic disputes.

Three in five believe Australia is an innocent victim in the trade war, rather than making itself a target by the government publicly criticising the Chinese regime.