Without significant progress on the Air Warfare Destroyer program, which is now up to three years behind schedule, local shipbuilding may be doomed, with the government warning that the project's remediation will serve as a test case.

This includes the crucial decision as to whether the next fleet of submarines will be built in Australia or overseas at a cost of tens of billions of dollars.

In a press conference spruiking the government's plans for local shipbuilding in the wake of a poor performance in a South Australian state byelection, Defence Minister David Johnston also said he would create a "sovereign submarine industry" but refused to give any detail as to what that involves.

Some Liberals have blamed the bad result in the the SA state seat of Fisher at the weekend partly on Senator Johnston's recent claim that he wouldn't trust the Adelaide-based government shipbuilder ASC to "build a canoe". Nervousness is compounded by the byelection set for the neighbouring seat of Davenport next month.

Senator Johnston unveiled what he said was a "three point plan" for shipbuilding: fixing the late and over-budget AWD project, creating the sovereign submarine industry, and developing a local industry around the building of future frigates within Australia.

Finance Minister Mathias Cormann said the success or otherwise of getting the project back on track would guide the government in future decisions about the fate of local shipbuilding.

"If we are not able to get this back on track in an appropriately efficient and effective way, then obviously that is going to be a problem in terms of demonstrating our future capacity to deliver the essential projects," he said.

Under an "interim" rejig to fix the AWD, shipbuilders BAE Systems and Navantia, who are already part of the project, will provide additional experts and managers to ASC, which takes the lead on the project. Another firm involved, Raytheon Australia, will take a greater leadership role.

Senator Cormann said they would have until the end of July next year to get the project back on track.

Senator Johnston meanwhile refused to say whether his plans to create a "sovereign submarine industry" would involve building the boats locally or only maintaining them in Australia.

The minister has been on the back foot on the issue after promising in opposition to build 12 submarines in South Australia but then drifting away from that promise in government, with strong speculation that the government is planning to buy submarines from Japan.

After announcing the submarine industry plan, Senator Johnston then refused to spell out any detail, telling reporters:  "If you're expecting me to give an announcement today as to what the exact route and way forward is you'll be a little disappointed."

But he said Australia needed, one way or another, the "underpinnings of a successful, sustainable submarine enterprise or industry" as a "first step" to making sure the nation has a regionally dominant submarine.