Overnight, Indonesia released Bali attacks bomb maker Umar Patek from prison on parole after serving little more than half his sentence.
The attacks killed 202 people, including 88 Australians.
Deputy Prime Minister Richard Marles said the news would bring a "difficult day" for Australians and families who lost loved ones in the Bali bombings.
He told ABC radio the government had advocated against Patek's early release and would urge the Indonesian government to ensure he had "constant surveillance" while on parole.
Energy Minister Chris Bowen said the development was concerning but the government respected Indonesia's legal system.
He said it was important to keep dialogue open between the two nations.
"Indonesians and Australians were killed by these terrible murders, Indonesians and Australians went through this terrible ordeal together," he told ABC News on Thursday.
"Now we are dealing with the ramifications together, understanding and respecting that Indonesia has their own legal system ... (which) does tend to lead to long sentences with early release."
Indonesian authorities have said Patek was successfully reformed in prison and they will use him to influence other militants to turn away from terrorism.
But Mr Bowen said the government would continue to advocate for the Indonesian government to monitor Patek.
"Through our embassies and consulates the Australian government makes all the necessary representations ... to ensure all the ... protections and measures will be put in place going forward as this man gets released," he said.
Patek was a leading member of Jemaah Islamiah, which was blamed for the blasts at two nightclubs in Kuta Beach.
He was found guilty by the West Jakarta District Court of helping build a car bomb that was detonated by another person outside the Sari Club in Kuta on the night of October 12, 2002.
With Associated Press
