SYDNEY (Reuters) - Australia is suing a Chinese-linked company and a former associate over a breach of foreign investment laws linked with rare earths miner Northern Minerals ( NOURF ), the national treasurer said on Thursday, adding it was the first case of its kind.

Indian Ocean International Shipping and Service Company was one of five foreign investors with ties to China subject to an order by Treasurer Jim Chalmers to divest shares on national interest grounds in June last year.

Chalmers said in a statement he had lodged a legal action in the Federal Court and was seeking penalties, declarations and costs.

"Foreign investors in Australia are required to follow Australian law," Chalmers said. "We are doing what is necessary to protect the national interest and the integrity of our foreign investment framework."

The statement, which said the case was the first to be brought by a Treasurer before the Federal Court for an alleged breach of foreign investment laws, did not give details of the current stake holdings. It named Indian Ocean, but did not name the former associate.

Indian Ocean International Shipping and Service Company could not immediately be contacted for comment.

Australia has sought to build a rare earths supply chain to decrease China's dominance over the elements used in products from smartphones to wind turbines and missiles and radar systems.

Northern Minerals ( NOURF ), a supplier of rare earths to a refinery being built by Iluka Resources in Western Australia, became a flashpoint for the contest after Australia blocked Singapore-based Yuxiao Fund from doubling its stake in the company to almost 20% in 2023.

Yuxiao, controlled by Chinese businessman Wu Tao, along with four other entities, including Black Stone Resources of the British Virgin Islands and Indian Ocean International Shipping and Service Company based in the United Arab Emirates, were ordered in 2024 to sell shares worth 10.37% of Northern Minerals' ( NOURF ) share capital within three months to unconnected associates.