The two Pacific powers are vying for influence as China continues its rapid development of military assets on islands and atolls in the region.
The United States is stepping up its firepower in the South China Sea to counter China's military expansion in the region.
Tensions are continuing to rise in an area disputed by several Asian countries and where the United States maintains a strong strategic interest.
US Defence Secretary Ash Carter says the United States will not surrender its position as a major Pacific power.
"We're not out to keep China down, but we don't look for anybody to dominate the region and certainly not for anybody to push the United States out. We are a Pacific power. We are there to stay. It is where half of humanity lives, half of the world's economy, an important part of the American future. We're there to stay."
China controversially claims sovereignty over most of the South China Sea, despite rival claims from Vietnam, Malaysia, Brunei, the Philippines and Taiwan.
Every year, trillions of dollars of global trade pass through the sea, which is also believed to contain huge oil and gas deposits.
The chairman of the Joint Chiefs of Staff, General Joseph Dunford, says China's increasing military presence in the South China Sea is designed to pressure the US.
"It is very clear to me that those capabilities that are being developed are intended to limit our ability to move into the Pacific or to operate freely within the Pacific. In this particular budget, we have focused on capability development that allows us to maintain a competitive advantage versus China. It is also why we are fielding the most modern capabilities in the Department (of Defence) to the Pacific first."
General Dunford says those capabilities will include F-35 and F-22 fighter jets.
The US has also conducted two so-called "freedom of navigation" patrols since October last year, sending warships into the territorial waters of islands claimed by China.
Most recently, it sent a destroyer within 12 nautical miles of Triton Island in January.
Australian air force planes have previously conducted flyover exercises in the area, but the Turnbull Government has refrained from joining the US naval operations.
Malcolm Turnbull says escalating military activity in the Pacific has implications for Australia.
"In the next two decades, half of the world's submarines and at least half of the world's advanced combat aircraft will be operating in the Indo-Pacific region. In our region. And this complicates the outlook for our security and strategic planning. We would be concerned if the competition for influence and the growth in military capability were to lead to instability and threaten Australia's interests."
