The Federal Government wants to pay companies to test space equipment in Australia.

A new scheme will see Australian companies offered cash to test and validate space equipment locally, saving the need for them to send such work overseas.

Small and medium enterprises will be able to access a $2.5 million federal government fund to improve Australia’s space-faring capabilities.

“The Morrison government wants to improve our sovereign capabilities in all things to do with space,” Science Minister Karen Andrews said on Monday.

The government wants Australia to launch vessels into space, and will spend $900,000 to investigate policy issues posed by launches, legislation guiding them and Australia's compliance with international obligations.

The $3.4 million worth of commitments comes from the $19.5 million space infrastructure fund outlined in the budget.