Pacific Minister Pat Conroy, who is representing Australia at the NATO Leaders' Summit in Turkey, said the missile test had been a feature of several discussions at the conference.
"NATO is taking plenty of notice. The Secretary General, Mark Rutte, has talked about it publicly," he told Nine's Today program on Wednesday.
"Many of the NATO countries also highlighted it, it's another example of how we're all interconnected. There's no such thing as a regional conflict; all conflicts are global now.
"It just demonstrates why the Albanese government is committed to increasing our defence funding so significantly, while also increasing our diplomatic efforts."
China fired a nuclear-capable long-range missile from a submarine in the Pacific on Monday, with the federal government only receiving several hours' notice.
The missile is understood to have landed between Nauru and Tuvalu.
The timing of the test came just hours after Australia signed a defence alliance with Fiji worth $1 billion, aimed at countering Chinese influence in the region.
China has been seeking to ink its own security deals with Pacific nations.
Mr Conroy said the test only reinforced the need to bolster efforts in the Pacific.
"There's an element of contrast where China was ignoring the stated wishes of Pacific leaders at the same time as we were signing our fourth alliance ever with Fiji," he said.
"It demonstrates that the way we're going about business in the Pacific will be more effective."
Opposition foreign spokesman Ted O'Brien said he was confident Pacific allies would be able to assert themselves against the actions of China.
"It is completely inappropriate that on a week, especially where we are talking about an ocean of peace in the Pacific, that the Beijing regime decides to fire a missile into the region," he told ABC Radio.
"It certainly goes to the contrast between what Australia's view is of the Pacific family and clearly what the People's Republic of China's view is."
He said the test represented a larger concern for the region, particularly on China's military capabilities.
"We also have the largest build-up in military capabilities since World War II in our region, and that includes, on the part of the People's Republic of China, building more nuclear weapons," he said.
"This is why we need to be backing in any calls that come internationally, for there to be greater transparency on the build-up of nuclear weapons, and there also needs to be arms control discussions."
Chinese foreign ministry spokeswoman Mao Ning defended the test, saying it was a routine arrangement in its military training program.
"It is consistent with international law and customary international practice and is not directed at any specific country or target," she said.
"The countries concerned were informed prior to the launch. The whole process was safe, standard and professional.
"We hope relevant countries will not read too much into it."
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