Australia’s government has ordered funds linked to a Chinese businessman to cut their stakes in a rare-earths miner, in a sign of how control of critical minerals is becoming a political concern.

Jim Chalmers, Australia’s treasurer, cited national interest grounds in demanding that Yuxiao Fund and four associates reduce or dispose of their stakes in Northern Minerals, a Western Australian rare-earths developer.

“The decision, based on advice from the Foreign Investment Review Board, is designed to protect our national interest and ensure compliance with our foreign investment framework,” a spokesperson for the treasurer said on Monday.

The move comes amid fierce debate in Australia about the alleged dominance of China in rare earths, which are used to build wind turbines and electric vehicles and in the defence industry.

China controls 70 per cent of rare-earths mining and 90 per cent of processing capacity, according to the International Energy Agency.

Australia has identified rare earths as a key part of its critical-minerals strategy and wants to help its corporate sector develop a supply chain outside China.

Northern Minerals has been positioned as a key supplier of rare-earth elements to a refinery being built by Iluka Resources on the coast of Western Australia.

The Australian government blocked Yuxiao Fund, which is based in Singapore, from doubling its stake in Northern Minerals to almost 20 per cent in February last year.

The Australian company contacted the FIRB last October to urge the regulator to investigate whether Yuxiao, which Northern Minerals said was controlled by businessman Wu Tao, had breached that order by covertly raising its stake through the use of associated funds.

The Singapore fund also called an extraordinary shareholders’ meeting to remove Nicholas Curtis, the executive chair of Northern Minerals and a rare-earths veteran, from his position. Yuxiao also nominated Wu, alongside other candidates, as a candidate for the board of the Australian company.

Curtis stepped down from his role last week. Northern Minerals will hold its annual meeting, which includes the proposed board nominations, this week.

A statement issued by the company said: “It appears that the treasurer has concluded that the acquisition of the relevant shares was inconsistent with the requirements of the Foreign Acquisitions and Takeovers Act 1975 and the previous prohibition order made by the treasurer.”

Yuxiao Fund did not immediately respond to a request for comment.

The move by the treasurer will force more than 10 per cent of Northern Minerals’ shares on to the market in the next two months.