The parent company, Aldersgate Investments, owns two data centres in Ultimo where it stores classified Australian government material, including sensitive Defence and intelligence files, according to an ABC report.
The switch back will cost the government about $200 million and will take place in 2020 when the contract between Defence and the data centre ends.
Both data centres in Ultimo have gateways that are certified by the Australian Signals Directorate and can be used for secure access by government offices.
However, this was contested by Treasurer Scott Morrison during the ABC News AM programme this morning. Morrison said the ownership of Global Switch had not changed despite the Chinese investment, as they had been "carved out" of the parent company and were thus not affected by the stake being sold.
The ABC said the investors in Aldersgate were brought together by Li Qiang who owns Daily Tech, a leading data centre company in China. The main investor was the Jiangsu Sha Steel Group, China's largest private steel enterprise.
The investment triggered a review by the Australian Foreign Investment Board, followed by the government seeking new conditions for the deal. These included an assurance that the two Australian data centres would continue to be owned in toto by Aldersgate.
ABC quoted Damon Reid, the APAC group director for Global Switch, as saying: "We don't provide IT services to customers nor do we have access to customer data.
"Our customers lease space which they fit out with their own secure cages with their own servers. Global Switch operates under the highest levels of security and our shareholders are restricted from physical access to the data centre."
This is not the first time that Australia has shown sensitivity to dealing with Chinese private sector entities. One example came when the Chinese telco Huawei was not allowed to bid for work with the NBN Co back in 2013.
In 2015, the investment by a Chinese corporation in Darwin's commercial port led to then US president Barack Obama personally telling Australian Prime Minister Malcolm Turnbull that Washington should have been consulted before the 99-year lease was finalised.
And more recently, additional conditions were imposed for foreigners, mostly Chinese, buying properties in Australia.