"We do not act unilaterally in the Middle East," he told reporters in Darwin.

According to the report in The Australian, in a meeting on November 25 last year, Mr Abbott suggested a unilateral invasion of Iraq by about 3500 ground troops to help stop the advance of Islamic State forces through the ravaged country.

But the idea was reportedly shot down by government military advisors, who were stunned the Prime Minister would suggest endangering Australian troops with no NATO or US cover to assist them.

According to the report, the advisors pointed out that such a move would make Australia the only Western country with troops on the ground in a disintegrating Iraq.

The report included a statement from the Prime Minister's office which did not deny the extraordinary report, which could raise fresh questions about the Prime Minister's judgement.

But Finance Minister Mathias Cormann said the statement supplied by the Prime Minister's office was not in direct response to the allegation put in the report, and was therefore out of context.

"My advice is the journalist who wrote that story actually never put that proposition to the Prime Minister's office when seeking comment," he said.

Treasurer Joe Hockey was also on the offensive this morning, taking to Twitter to refute the story.

The story by John Lyons today in @australian is just complete and utter rubbish. Factually wrong. Same as Garnaut in @smh yesterday. — Joe Hockey (@JoeHockey) February 20, 2015

The Australian's editor, Clive Mathieson, told Fairfax Media: "The Australian stands by the story 100 per cent. The Prime Minister's office was alerted to our questions verbally on Thursday afternoon and in writing on Friday morning."

Fairfax Media