The State Government says South Australia's defence industry would not be worse off under Prime Minister Kevin Rudd's proposal to downgrade Sydney's Garden Island naval base.
State and Federal Liberal MPs warn it could see future defence contracts go to Queensland and the Northern Territory.
The New South Wales Government has condemned the Prime Minister's intention to move the Navy's headquarters further north to regional hotspots, claiming it will cost thousands of local jobs.
Mr Rudd says the Garden Island facility could instead be used by cruise ships.
South Australia is home to about a quarter of the state's defence sector and a local industry group says the move would be a waste of money.
Chris Burns, from the Defence Teaming Centre, says the billions of dollars needed for such a move, could be re-directed into stabilising defence industries in Adelaide.
"A true strategic decision would have been to bring forward projects to build ships here in SA and use the national ship building capability that already exists here in South Australia, in Victoria and New South Wales," he said.
South Australian Premier Jay Weatherill says the Prime Minister's office has assured him the state's naval work would not be affected by the move.
Mr Weatherill has hinted there will be more news about defence projects during the election campaign.
"I think that people in South Australia will be very pleased as this campaign rolls on to see the level of commitment by the Federal Government to South Australia," he said.