Australia has found its spine and has blocked Chinese and Hong Kong-based firms from bidding for a majority stake in state-owned Ausgrid, the country's largest electricity network, over national security concerns.

By making the decision, Canberra has called China's bluff that Australia's siding with the U.S. and its Asian allies on the South China Sea issue will damage bilateral ties.

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Particularly galling for Australia was China's contemptuous warning on Aug.4 Australia was a "paper cat," and that the country would be an "ideal target for China to warn and strike."

The warning made by Beijing through its propaganda mouthpiece, the Global Times, also described Australia as "delirious" for its decision to support a ruling in the Permanent Court of Arbitration in The Hague that China had no historic claim to the waters and it had violated the Philippines' economic and sovereign rights.

Ausgrid operates an electrical distribution network with 1.6 million customers in Sydney, Central Coast, Hunter Region and Newcastle areas of New South Wales.

Australia's snub follows an earlier decision by the United Kingdom to postpone approval of the Hinkley Point nuclear power project where China General Nuclear Power Corporation (CGN) will own a minority stake, also on national security concerns.

The attempted Chinese takeover of Ausgrid was led by State Grid Corporation of China, the largest electric utility company in the world. SGC was planning to own 50.4 percent of Ausgrid, which the NSW state government is selling, and was willing to pay over $7.5 billion for this stake.

Australia rejected bids for Ausgrid from SGC and from Hong Kong billionaire Li Ka-shing amid growing national opposition to selling more key infrastructure assets to China. In Australia, State Grid already owns stakes in electricity companies Jemena, AusNet Services and ElectraNet.

Australian Treasurer Scott Morrison said it would be against national security to allow the offers to proceed in their current form.

"Ausgrid's footprint includes critical power and communication services provided to businesses and government," said Morrison.

He said he'll make a final decision after seeing any revised submissions.

TagsAusgrid, Australia, china, State Grid Corporation of China, Li Ka-shing, Scott Morrison