Prime Minister Anthony Albanese and his Vanuatu counterpart Jotham Napat were scheduled to sign a transformational security deal ahead of Pacific leaders meeting in the Solomon Islands this month.
The $500 million deal - the second attempt by Mr Albanese to formalise an agreement with Port Vila - fell over at the last minute after Vanuatu raised concerns it could inhibit assistance from third nations.
Mr Napat said there were issues around it potentially blocking other nations being able to fund the nation's critical infrastructure projects.
Australia has been working to sign exclusivity agreements across the Pacific to lock China out of critical infrastructure and security, and has struck similar deals with Tuvalu, Nauru and Papua New Guinea.
But Vanuatu has effectively been playing Australia and China off against each other to bolster its own aid.
China donated policing equipment including drones to Vanuatu after Chinese State Councillor and Minister of Public Security Wang Xiaohong met with Internal Affairs Minister Andrew Solomon Napuat.
The Vanuatu Daily Post reported Mr Napuat said Vanuatu had already finalised memorandums of understanding and co-operation agreements with other nations like Australia, and China was the only nation with which it still needed to formalise a pact.
"Our two governments wish to formalise a police MoU similar to existing MoUs with Australia, New Zealand, France, the UK, and PNG, to better co-ordinate and manage different areas of partnership in the policing sector with all of our partners," he is quoted as saying.
He said the agreement was not the same as the Nakamal security agreement being negotiated with Australia.
The Nakamal agreement is the pact under which Australia seeks to bolster Vanuatu's economic and developmental needs in exchange for security co-operation.
While the text hasn't been made public, similar agreements Australia has struck include an effective veto of third nations providing assistance for security or critical infrastructure.
Mr Napuat said international media had exaggerated and misrepresented discussions about its security partnerships "which have very specific meanings in Vanuatu's context".
Vanuatu's interest wasn't in militarisation but on security issues such as climate change, crime and general policing, he said.
"This is why we must define our own security challenges and determine our security and policing needs," he said.
"Climate change is the biggest security threat in Vanuatu."
Prior to this month's stalled deal, Australia and Vanuatu agreed a security agreement in 2022 that expressed a "family first approach to peace and security in our region".
The rhetoric is used by the Australian government to denote that security needs should be met by Pacific nations and not outside countries, namely China which is working to secure its only foothold in the region.
The 2022 pact - Mr Albanese's first attempt at deal-making after coming to office - was never ratified by Vanuatu's parliament due to concerns it breached the nation's non-alignment foreign policy and had greater implications for its sovereignty.
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