Foreign investment is set for its biggest shakeup in a generation under a proposal that could put rail, energy and port assets out of bounds and give the federal government sweeping "last resort powers" to take direct control of businesses if national security is at risk.

In submissions to the federal government's US Department of Homeland Security style Critical Infrastructure Centre, state governments, the Law Council of Australia and Infrastructure Partnerships Australia have all criticised proposals that could discriminate against foreigners and undermine the responses of state-based emergency services.

The centre, to be run by Attorney-General George Brandis and his department, has put forward a proposal to give it "last resort powers" that could also see it assume control of privately owned assets in the commun­ic­ations, food, and finance sectors in the event of an emergency.

But state government officers have lashed the discussion paper proposal in their submissions, warning of "consequences for the preservation of life and property" if the federal government usurps the power of the state-based ministers for justice and police forces in the event of a crisis.

"NSW agencies support the need to address significant risks where all other risk management avenues have been exhausted, [but] it would appear that there are likely to be constitutional issues in relation to this proposal," the submission from NSW government officers said.

"If the 'last resort power' is exercised and the consequence is a death or injury that might otherwise have been prevented, then the question of who bears responsibility is raised."

Queensland and the Northern Territory have also raised concerns over an "erosion of state powers".

It is understood Prime Minister Malcolm Turnbull told the Coalition party room this week that in the wake of the Manchester terror attack more "needed to be more done to harden infrastructure".

Bolstering national security is set to be a key discussion between the Prime Minister and state premiers at the Council of Australian Governments on Friday, according to a government minister.

The Rail Industry and Safety and Standards Board said it supported the work being undertaken by the government, warning there was "a high potential of mass casualties," with more than 644 million trips a year.

"Transport systems are by their nature open to the public, very accessible and vulnerable to attack," the board said.

In the lead up to COAG, military experts have also urged the government to take cyber threats to infrastructure more seriously.

"Attacks pioneered by nation states are now being used to attack businesses of all sizes," military producer BAE Systems Applied Intelligence said. "Standard security technology has dropped in effectiveness from 80 per cent to 20 per cent over the past 10 years."

The group cited cyber attacks as far back as 1999 that caused an environmental disaster at the Maroochydore sewerage treatment centre after millions of litres of raw sewage spilled into nearby parklands and rivers. More recently, satellite communications company Newsat was reportedly so comprehensively infiltrated "that its entire network had to be rebuilt in secret."

The nation's top scientific body, the CSIRO, has also accused the government's discussion paper of being "silent on the potential effects of climate change in systematically altering the risks faced by critical infrastructure."

"Direct impacts may be important if infrastructure failures driven by climate risk allow breaches of security or further disruption to networks by threats such as sabotage," the CSIRO's chief coordinating scientist of adaptation Mark Stafford-Smith said.

Dr Stafford-Smith said some critical infrastructure, such as telecommunication pylons, face a 300 per cent increase in risk from climate change and that this type of "systematic change" needed to be taken into account.

As part of it national security capacity, the proposed centre would have significant influence over deciding what assets are out of bounds to foreign investment along with the Foreign Investment Review Board.

Infrastructure Partnerships Australia was one of many submissions that gave its support for the establishment of the centre but said 1970's era foreign investment rules needed to be reformed and that under the FIRB too much power rested with Treasurer Scott Morrison.

Foreign investment confidence has taken a battering after the Treasurer and the Foreign Investment Review Board blocked two foreign bids for the NSW government's sale of Ausgrid last year and Melbourne's East West Link project was abandoned in 2015.

The 11th hour decision to block the Ausgrid sale infuriated Chinese bidders after they had injected millions of dollar into their bids.

"Recent comments, such as by the FIRB chairman, warning Chinese investors to avoid bidding on Australian 'icons' due to the possibility of public backlash, naturally led to confusion as to whether the regulations around foreign investment are being applied objectively," the IPA said.

The Northern Territory government also raised concerns that the national security focus would drive away foreign investment, echoing the discrimination concerns of the Law Council of Australia.

In 2015 the NT government granted a $506 million 99-year lease over the Port of Darwin to a Chinese company, Landbridge, with alleged links to the People's Liberation Army, after it escaped Foreign Investment Review Board scrutiny.

"The Critical Infrastructure Centre was established from a recognition that Australia has outstanding opportunities for foreign investment however the national security focus of the discussion paper fails to adequately reflect that, but may in fact cause investors to look elsewhere," the Department of the Chief Minister said.