New legal standards for artificial intelligence and data centres will be introduced early in 2027, Prime Minister Anthony Albanese announced on Wednesday as part of a framework for the emerging technology.
The government plans to require AI data centre operators to finance new energy generation amid concerns from communities of the environmental impacts.
But UNSW professor and AI researcher Toby Walsh said at a minimum there should be a halt on new approvals for data centres until the guardrails were in place.
"We need to make sure these centres aren't a drain on us and insist at a minimum on additional renewables," he told AAP.
"The devil is often in the detail and it's good there will be a whole-of-government approach to AI's whole-of-economy transformation.
"But there wasn't any additional spending in the announcement, particularly when research and development is at a record low in Australia."
Mr Albanese said companies were welcome to invest in Australia, if they met conditions.
"So you want to build a big data centre, you have to provide the energy so that's additional to the grid," he told ABC's 7.30 on Wednesday evening.
"You have to pay for transmission. If there are any additional water usage, you have to fund that as well, and it needs to be located in an appropriate location as well."
Business groups warn too much regulation will stifle investment, as the data centre pipeline is estimated to exceed $155 billion by one of Australia's largest banks.
Business Council chief executive Bran Black acknowledged the concerns held by communities about data centres needed to be respected.
OpenAI, which opened its Australian office in December, signed an agreement to become the initial offtake investor for a proposed data centre in Western Sydney.
A spokesperson for OpenAI said the company wanted to work with Australia to help the nation reach its ambitions.
"This is truly a once-in-a-generation opportunity for Australia's economy and it's crucial the country gets this right," the spokesperson said.
"We are committed to engaging constructively throughout this process with the government, creators and industry on an approach that is practical, sustainable and right for Australia."
Australian Conservation Foundation chief executive Adam Bandt said the rush to approve data centres had the potential to derail Australia's clean energy transition.
"If you want to build a data centre in Australia, you should be compelled to build the renewable energy and water recycling infrastructure to service it," he said.
Greens environment spokeswoman Sarah Hanson-Young, also chair of the inquiry into AI data centres, said a pause was needed on the approval and construction of new mega data centres while policy work was underway.
"Just because big tech companies want to move at hyperspeed, doesn't mean that we need to fast track and roll out the red carpet for them," she said.
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