Clive Hamilton said printing of his book Silent Invasion was pulled by publisher Allen & Unwin last week just as it was about to go to the presses.
"What we're seeing is the first instance where a major Western publisher has decided to censor material of the Chinese Communist Party in its home country," he told the Australian Broadcasting Corporation.
"This really is a watershed in the debate over China's suppression of free speech," said Hamilton, a prominent academic at Charles Sturt University.
"I think if we succumb to this in Australia then we have lost a big battle in trying to defend what we take to be fundamental rights and privileges and freedoms in this country."
Canberra in June ordered an inquiry into espionage laws and foreign government activities after a media investigation into large political donations by two Chinese billionaires with reported links to the Communist Party.