Academic Clive Hamilton said his book "Silent Invasion" was pulled by publisher Allen and Unwin last week just as it was about to go to press.
He told AFP that Allen and Unwin had cited "serious... threats" of possible legal action from Beijing should the company release the work.
The book, which was to be his ninth with the publishing house, included the names of individuals and organisations trying to influence Australian society and politics in China's interests, Hamilton said.
In an email exchange with Allen and Unwin which Hamilton shared with AFP, the publisher said there was a "very high chance" the company could be sued for defamation if the book was published.
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"If pursued with malice, this kind of vexatious legal action... could result in the book being withdrawn from sale, and both you and Allen and Unwin being tied up in expensive legal action for months on end or longer," it said.
Hamilton, a prominent author and professor of ethics and Charles Sturt University, called the decision "a watershed moment in Australia, when Beijing can suppress free speech".
Canberra in June ordered an inquiry into espionage laws and foreign government activities following a media investigation into large political donations by two Chinese billionaires with reported links to China's Communist Party.
The probe, by the ABC and Fairfax Media, said intelligence agencies had major concerns that Beijing was interfering in Australian institutions and using the political donations system to gain access.
Last month Foreign Minister Julie Bishop warned Chinese students in Australia they should abide by the nation's values of "openness and upholding freedom of speech".
But he rejected letting his manuscript "sit on a shelf gathering dust for a year or more" and insisted he would find another publisher for the work.