Australia's Defence Minister David Johnston Wednesday backtracked on comments in which he said a government shipbuilding firm could not be trusted to "build a canoe", amid calls that he be sacked.

The outburst from the normally sedate minister in the Senate late Tuesday prompted demands for his dismissal from cabinet, and forced the prime minister to publicly defend the firm.

Johnston said his remarks about the ASC, formerly the Australian Submarine Corporation, were not intended to offend but highlight the difficulties successive governments had faced in establishing a world class submarine capability.

In a heated debate he said the ASC, which maintains the nation's Collins Class submarines, was Aus$350 million (US$299 million) over budget on a project to build three Air Warfare Destroyer warships and that this figure could balloon further.

"You wonder why I'm worried about ASC and what they're delivering to the Australian taxpayer? You wonder why I wouldn't trust them to build a canoe?" he said.

The comments come amid debate about whether Australia's next generation of submarines should be built by the ASC in Adelaide or brought in from overseas, with Japan a possible alternative.

Prime Minister Tony Abbott moved to limit a growing backlash, saying the ASC played a vital role in supporting the Royal Australian Navy.

"Whilst ASC has had challenges meeting the government's cost and schedule expectations of the Air Warfare Destroyer programme, we are working closely with ASC on a reform strategy to improve shipyard performance and productivity," he said in a statement.

"It is early days, but the government is confident that ASC and its partners will successfully turn the corner on this important build."

Johnston Wednesday said his comments had been a "rhetorical flourish".

"Regrettably, in rhetorical flourish, I did express my frustrations in the past performance of ASC," he said.

"I, of course, was directing my remarks at a legacy of issues and not the workers in ASC whom I consider to be world class."

But opposition Labor leader Bill Shorten said the minister should be sacked, saying he had trashed the reputation of local submarine makers.

"He is a disgrace," added opposition Senate leader Penny Wong. "This is a man who has insulted thousands of hard working Australians."