Prime Minister Julia Gillard has warned that Burma must make more effort to improve its record on human rights, adding to criticism which threatens to overshadow political reform in the once-isolated so-called pariah state.
Despite acknowledgment of political reforms, the release of political prisoners and the election to parliament of Nobel Peace Prize laureate Aung San Suu Kyi, major concerns remain about human rights abuses in Burma.
Ethnic violence has broken out, with dozens of people killed and more than 100,000 displaced in clashes between Rakhine Buddhists and Rohingya Muslims.
Ms Gillard said she welcomed changes in Burma which had seen it take steps towards democracy.
A nominally civilian government led by President Thein Sein, who served as a general and then prime minister under the junta, was installed in March 2011.
"We have seen changes happen, and as change has happened, every step of the way we have welcomed that change and we have shifted Australia's foreign policy settings to recognise that change," Ms Gillard told reporters in Vientiane.
The comments came ahead of talks between Ms Gillard and President Sein in Vientiane on Monday, the first such meeting between an Australian prime minister and a leader of Burma since 1984.
"This meeting is another recognition of that change," Ms Gillard said.
But the prime minister said there was "still more to do", and insisted that she would raise her concerns with the Burmese president.
"I will certainly be saying as I have said here that we have continuing concern about human rights questions for ethnic minority groups," she said.
Australia has already lifted targeted travel and financial sanctions on 126 individuals in Burma, but there is still an arms embargo in place.
The unrest and accusations of ethnic cleansing have prompted Indonesian Foreign Minister Marty Natalegawa to warn that Burma was a problem for the entire bloc of South-East Asian nations.
"Of course the matter to do with the Rohingya, the Rakhine state is an issue of concern for ASEAN countries, for individual ASEAN countries," Mr Natalegawa said.
"We [Indonesia] wish very much for (Burma) to be able to address this problem in a positive way in the same way that it has on the overall democratic process," he told AFP ahead of an Asia-Europe meeting in Laos.