Visiting Sri Lankan Foreign Minister Rohitha Bogollagama said he had asked Canberra to join countries such as Britain and the United States in taking the step against the Liberation Tigers of Tamil Eelam (LTTE).
"As I indicated to the foreign minister, that is currently under consideration by the Attorney-General," Smith told reporters after a meeting with Bogollagama in Canberra.
Smith said the Tamil Tigers was already effectively banned in Australia.
"For a considerable period of time the LTTE has effectively been listed under United Nations arrangements, that effects a freeze on LTTE assets in Australia and as a consequence (it is) unlawful for the use of LTTE assets in Australia," he said.
Smith said he had also raised with his counterpart Canberra's concerns over the violence in Sri Lanka and the worsening humanitarian situation.
"Australia's view remains that Sri Lanka's conflict cannot be resolved through military means alone," he said.
"All parties to the