ABC News reported that the unit would initially have 100 staff and this would grow to 900 in a decade.
It quoted Professor Greg Austin of the University of New South Wales as saying: ""The main angle of cyber war is to prevent the enemy's armed forces from reaching the start line of battle."
The unit will be led by Major-General Marcus Thompson and will cover all three branches of the armed forces.
The new unit will take on the role of information warfare and it will gather intelligence that can help in both defence and launching attacks.
"Australia is relatively undeveloped," Professor Austin said.
"We're well behind the United States, but the good news is Russia and China, potential adversaries of Australia, only really joined this cyber arms race in the relatively recent past."
Prime Minister Malcolm Turnbull raised the issue of online preparedness in January after hearing of the allegations made jointly by the CIA, FBI and NSA of Russian hacking of the Democratic National Committee's email accounts.
"We need to be aware of the threats and how to mitigate and protect against them," Turnbull said at the time. "Awareness is the most important first step.
"I think you can pretend the threats are not there, if you like, but that will only make you susceptible to being taken in by them."
Reacting to these statements, Opposition leader Bill Shorten accused Turnbull of "grandstanding on national security".
"I think the public has a right to know and the media has a right to report, but I also think that when it comes to national security these are not political footballs to be kicked around," he said.
"We will work with the government, they are right to say it's an issue."