A Russian diplomat is reportedly squatting on a site where his country was blocked from building a new embassy near Parliament House in Canberra.
Australian Federal Police officers are watching the man, but have been unable to arrest him because he has diplomatic immunity, The Australian newspaper reports.
He has been staying in a portable building on the otherwise vacant construction site.
Moscow is expected to launch legal action to challenge legislation pushed through the parliament last week denying Russia access to the prime Yarralumla block on national security grounds.
A spokesman for Home Affairs Minister Clare O'Neil told The Australian the government was preparing to seize the land but gave no further details.
"Processes are under way for the commonwealth to formalise possession of the site," he said.
Last week Prime Minister Anthony Albanese said the government had received "very clear security advice as to the risks presented by a new Russian presence so close to Parliament House".
"We are acting quickly to ensure the lease site does not become a formal diplomatic presence," he said.
Kremlin spokesman Dmitry Peskov last week slammed the decision, accusing Australia of "Russophobic hysteria" and warning of retaliation, saying it was "another unfriendly display from Australia".
Russia's existing embassy in the inner-south suburb of Griffith will not be affected by the decision.
The National Capital Authority granted the lease for the Yarralumla site in December 2008, and building approvals followed in 2011.
Under the lease conditions Russia had agreed to finish construction within three years, but it remains partially built.