Australia terminated the tender process for an operator to run its international television service broadcasting into Asia and the Pacific on Monday, citing "significant leaks" to the media.
The Rupert Murdoch-linked Sky News had been up against current operator the Australian Broadcasting Corporation to win the contract to run the Australia Network for the next decade.
But Communications Minister Stephen Conroy said the process had been ended on the advice of the government solicitor after "significant leaks of confidential information" meant a fair outcome could no longer be achieved.
"The government is extremely disappointed that such leaks have occurred and that the process has been compromised," Conroy said in a statement.
"This decision has not been taken lightly but the government believes that the advice received about the tender process leaves no other option."
Conroy said federal police would be asked to investigate the leaks about the Aus$223 million (US$230 million) contract for the Australia Network, which is partly funded by the government and screens in more than 44 countries.
Conroy did not mention what specific leaks scuppered the process, but reports have emerged in several outlets during the bid process, including one which said a government advisory panel had recommended Sky as the winning bid.
Sky News is part owned by Britain's BSkyB, which in turn is part owned by Murdoch's News Corporation.
Senator Conroy, who stressed the government had acted within the terms and conditions of the tender process at all times, said a decision on the longer-term operation of the Australia Network would be made by March 2012.
The ABC has been granted an extension to its current contract to operate the service, which broadcasts news, drama and sport as well as programmes to teach the English language, until August 2012.