Intelligence provided to the federal government shows cigarettes in plain, Australian-style packaging are being produced illegally at an industrial scale in Southeast Asian warehouses.
Factories owned and operated by criminal syndicates, primarily based in Cambodia, are pumping out increasingly sophisticated fake products that replicate common brands.
Some of the counterfeit packaging is even branded with Australian health warnings.
The production has prompted Customs Minister Julian Hill to urge his parliamentary counterparts to pass tough laws as soon as possible.
A new bill on tobacco trade is expected to be debated in the Senate on Thursday.
It would give law enforcement stronger powers to detect and disrupt illegal tobacco trade lines, including choking off criminal profits.
But Mr Hill was concerned the sophisticated overseas production was becoming increasingly hard to notice, or stop.
"Serious and organised criminal syndicates have weaponised the cheap oversupply of tobacco globally and will do anything to make a buck," he said.
"The crooks will continue to adapt their tactics.
"This highlights the urgency of equipping state, territory and commonwealth authorities with these new powers to go after anyone involved in the illegal tobacco trade, including the supply chains and retail outlets."
Several states and territories have been cracking down on enforcement measures, including blitzes of black market shopfronts.
Queensland has taken the hardest line, and legal cigarette sales have grown as a result.
NSW Police closed 10 retailers across the state last week, including eight in southwest Sydney.
Across just two days on October 6 and 7, NSW Health inspectors seized 420,000 illegal cigarettes, about 60kg of loose-leaf tobacco and thousands of illicit vapes - small numbers compared to the 2.4 tonnes of tobacco confiscated since the start of the year.
Some shops have been closed for more than 90 days as the NSW government ramps up enforcement.
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