Shane Warne has criticised Australia's inclusion of Steve Smith in its line-up at the men's T20 World Cup, following the eight-wicket loss to England.

Australia was dismissed for a paltry 125 in Dubai on Sunday morning (AEDT), with Smith — batting at number three — only making 1 from five deliveries.

England comfortably reached the victory target in the 12th over of its run chase.

Warne — one of Australia's greatest Test and ODI players — took to Twitter to question why Smith was named in the XI to face England.

He said Mitchell Marsh should have been selected, while also challenging how Glenn Maxwell was used in Australia's batting order.

"Disappointing selection from Australia leaving Marsh out and Maxwell batting in the power play (he should always come in after power play)," Warne wrote on Twitter.

"(Marcus) Stoinis should have gone in. Poor strategy and tactics from the Aussies.

"I love Smith but he shouldn't be in the T20 team. Marsh has to be."

Smith made 35 and an unbeaten 28 in Australia's opening two matches against South Africa and Sri Lanka at the men's T20 World Cup.

He averages 27.67 with the bat in T20 internationals.

Australia captain Aaron Finch defended the selection of Smith against England, saying Marsh's omission was not because of form.

"Everyone's got a different opinion on it, and that's OK," he said.

"We thought we picked the team to to win the game tonight.

Finch said the Australian camp did not have concerns about Smith's fitness, despite the former Test captain appearing to be in discomfort while fielding against England.

"He'll be fine," Finch said. "He didn't mention anything. So I'm sure that he will be fine."

Australia sits third in its group standings following the loss to England.

England is on top, with three wins from as many matches. South Africa is in second place, ahead of Australia because of a superior net run rate.

Australia must beat Bangladesh and West Indies in its next two matches to have any hope of progressing from the group stage.

The top two teams from each of the two six-nation groups will advance to the semi-finals.