FILE PHOTO: Australia's Prime Minister Anthony Albanese speaks to the media during a press conference at the Australian Parliament House in Canberra, Australia, August 16, 2024. REUTERS/Tracey Nearmy/File Photo

By Kirsty Needham

SYDNEY (Reuters) - Vanuatu delayed a landmark security and development agreement with Australia because of concerns it could limit the Pacific island nation receiving infrastructure funding from other countries, Prime Minister Jotham Napat said on Tuesday.

The Vanuatu deal is one of two major security agreements Australia had expected to sign with Pacific island neighbours this month, as Canberra seeks to block China from expanding its security presence in the region.

Napat met with Australian Prime Minister Anthony Albanese in Port Vila on Tuesday, where the two leaders had been expected to sign the Nakamal Agreement, after it was initialled by ministers in a ceremony on the side of a volcano last month.

Australia had agreed to commit A$500 million ($326.5 million) to strengthen economic and security ties with its Pacific neighbour.

Napat said at a press briefing that the delay was due to his government's coalition partner being concerned that the deal would limit Vanuatu's access to infrastructure funding from other countries.

Beijing is Vanuatu's largest external creditor, after Chinese banks extended loans to Vanuatu to pay Chinese companies to build infrastructure, including a presidential office complex, the nation's parliament and roads.

Albanese told reporters he was confident the deal would be signed soon.

"This is an agreement that will importantly respect sovereignty of Vanuatu, but one as well that will respect sovereignty of Australia," he said.

Australia wanted to see economic development, an upskilling of the workforce, and more infrastructure in Vanuatu, he added.

A 2022 security deal signed by Australia and Vanuatu, months after China signed a pact with Solomon Islands, was later blocked by Vanuatu after failing to win domestic political support.

Albanese will travel with Napat to the Pacific Islands Forum regional leaders summit in Solomon Islands on Wednesday.

He is expected to travel to Papua New Guinea next week for the 50th anniversary of independence celebrations, where a new defence treaty between Australia and PNG is due to be signed.

Albanese said he would tell the forum leaders that Pacific security needed to be "undertaken within the Pacific family".

(Reporting by Kirsty Needham in Sydney; Editing by Stephen Coates and Saad Sayeed)