The former Labor leader attacked the prime minister, foreign minister and defence minister directly.
Mr Keating also described Australia's partnership with the US and UK through AUKUS as the worst international decision of a Labor government since the conscription policy during World War I.
Mr Albanese says he will govern in Australia's national interest.
"The world has changed," he told 3AW radio.
"China has changed his posture, and its position in world affairs since the 1990s when Paul Keating was active in politics, as a parliamentarian and as a leader.
"My job is to govern Australia in 2023 based upon what we see is the facts before us."
A second former prime minister has also weighed in on the AUKUS debate, with Malcolm Turnbull saying Australia's plan to acquire nuclear-powered submarines comes with a "very high risk" of failure.
As part of the arrangement, Australia will command a fleet of eight nuclear-powered submarines within the next three decades.
Mr Turnbull said Australia would need to train thousands of skilled workers, who then faced a challenge of finding work in a relevant field after the project finished.
"The human resources challenges of this are really considerable, because we don't have a nuclear industry in Australia," he told ABC RN.
The former Liberal leader said the deal came with a "very high risk" of failing to deliver because the British submarines were yet to be designed.
Mr Turnbull also questioned whether Britain was going to be "financially strong enough" to be Australia's partner in delivering the boats, with the country's economy forecast to be the worst-performing large advanced economy this year.
He said unlike the UK, France - which Australia tore up a $90 billion submarine deal with for AUKUS - was already in the Indo-Pacific and had millions of citizens located there.
Mr Turnbull said all of these issues should have been publicly debated.
"We've been caught up in this hoopla where anyone that expresses any concerns about it is accused of being or implied that they're lacking in patriotism," he said.
Mr Keating condemned the $368 billion price tag and questioned Australia's sovereignty within the arrangement.
Mr Albanese said while he would defend his "outstanding" ministers, Mr Keating still had his "utmost respect" for what he achieved as prime minister and treasurer.
Opposition Leader Peter Dutton said Mr Keating's comments showed there was division within the Labor Party over AUKUS.
"I think it is incumbent upon (the government) ... to rebuke the unhinged comments of Mr Keating," he told reporters in Melbourne.
"They should be taking the advice of the military and intelligence chiefs as opposed to Paul Keating."
State Labor premiers are also going head to head over where nuclear waste will be stored in the 2050s, with South Australian leader Peter Malinauskas saying it shouldn't necessarily be kept where the subs were built.
Victorian Premier Daniel Andrews says it should be stored where all the jobs were going, with the Osborne shipyard in Adelaide being upgrade to be able to build nuclear submarines in the future.
"Apart from being parochial, I think if the jobs are going to a certain city maybe the waste can go to that state," he said.
"I don't think that's unreasonable, is it?"
