Changes to the Foreign Relations Act would allow the Australian Security Intelligence Organisation (ASIO) to probe universities without the institute needing to know.
ASIO currently has to notify universities when it makes a formal security assessment.
The proposed changes would mean "ASIO's advice to the foreign minister would not need to be provided in the form of a security assessment," an explanatory memorandum on the amendment bill read.
The changes came after the federal education department wrote to 26 university vice-chancellors in March about the risk of foreign interference and espionage.
Several of the universities collaborated with a scientist in Iran to complete research on drones, The Australian newspaper reported.
The amendments would also require a national interest test for university arrangements, including considering security, economic and foreign aspects holistically.
The University of Queensland said the change would give broad powers to the minister, given a definition of the term had not been clearly outlined.
"If the bill neglects to provide a definition of national interest in reference to the Foreign Relations Act's purpose, national interest would in practice simply mean whatever the minister says it means," the university's feedback on the bill's exposure draft said.
"These provisions would in fact, if not in intent, empower the minister to intervene in otherwise harmless arrangements for reasons outside this broader conception of foreign policy," it said.
The bill will continue to be debated in the current sitting fortnight.
The coalition is not expected to oppose the changes, but were awaiting a report into specifics before proceeding.
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