Defence Minister David Johnston said the defence liaison force is being deployed to protect embassy staff and evacuate them if necessary, not to help Iraqi forces battling militants who have seized large swathes of the country's north in the past two weeks.
He did not confirm how many personnel have been sent for security reasons.
"Should things turn very bad very quickly, we can respond," he was quoted by ABC News as saying.
"But right now [our priority is], first of all, ensuring our people in Baghdad are safe - that we have the capacity to remove them if necessary [and] to remove them safely if necessary," he said.
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"These people should have no place in our country and we will do our best to keep them out," he said adding "If they can't be kept out, they will be taken into detention because we are not going to allow people who are an obvious threat to our safety and security to roam loose in Australia".
The Australian embassy was moved into the highly secure green zone in Baghdad in 2004 after a series of car bombings struck near the previous embassy building, ABC News reported.
In 2011, 33 Australian soldiers who guarded the embassy withdrew from the country and a Dubai-based private security firm took over security duties.