Russia has flagged legal action after Australian bureaucrats scuttled the construction of its new embassy building in Canberra.

Authorities have ordered the "premium" block of land near parliament house be vacated within 20 days.

In 2011, Moscow was granted approval to build a new embassy complex in the central Canberra location, to replace its ageing compound, however, the project has been beset by delays for years.

On Wednesday, the National Capital Authority (NCA) blamed Russia's failure to finish construction within an agreed three-year deadline for the decision to terminate the lease.

"The Russian Federation had purchased the rights to the site with the intention of building a new embassy to replace their existing embassy in the suburb of Griffith," the NCA said in a statement.

"The NCA granted the lease in December 2008, and the works and building approvals on 31 March 2011 and 23 September 2011, respectively."

NCA chief executive Sally Barnes said her organisation had decided to invoke its "use it or lose it" policy because of the "limited blocks currently available for diplomatic purposes" in the capital.

"The block is a premium site in central Canberra, close to Lake Burley Griffin and the Australian Parliament House."

"On-going unfinished works detract from the overall aesthetic, importance and dignity of the area reserved for diplomatic missions and foreign representation in the National Capital."

The NCA also denied that the termination of the lease was connected to Russia's invasion of Ukraine, saying it was an "independent issue that arose from a contravention of the lease".

One federal government figure — speaking on the condition of anonymity — also said the NCA's decision was based on planning considerations and was not "directly" influenced by Russia's invasion of Ukraine.

The official, however, noted that any reservoirs of goodwill towards Moscow in Canberra had been drained by its recent illegal military activity.

"You can't imagine it helped," the official told the ABC.

A spokesperson for the Department of Foreign Affairs and Trade (DFAT) said the department was "aware" of the NCA's decision, and confirmed Russia maintains its existing embassy building in Griffith.

In 2018, the embassy complained that Australia's sanctions against Moscow in response to its 2014 reclaiming of Crimea by force, had complicated its construction plans because of the government's refusal to allow Russian workers to support the project.

Four years ago, the project was estimated to cost $8.2 million, and included residential quarters and a large swimming pool.

Russian embassy responds

The Russian embassy said it was seeking legal advice on the "unprecedented and highly unwelcome move".

"It is really puzzling why the NCA chose to terminate the lease now that the construction process at Yarralumla site has been steadily going on, uninterrupted, for the last two-plus years with results already very much visible and prospects rather clear," the embassy said in a statement.