MELBOURNE - The Australian navy is investigating allegations that male sailors ran a betting ring offering rewards for having sex with female colleagues, Deputy Prime Minister Julia Gillard said.

Gillard confirmed reports that a navy inquiry was underway into the alleged betting set-up aboard the HMAS Success and expressed concern it could deter women from joining the military.

"We don't want to see anything that precludes women from having a good career in our armed forces if that's what they choose to do with their lives," Gillard told Channel 10 television.

"Clearly these allegations need to be fully investigated."

The sailors on the Success allegedly kept a book called "The Ledger" in which dollar values were placed on each woman's head, Channel Seven television reported.

Female officers and lesbians attracted higher values and premiums were paid if sailors could engage in sex in unusual locations such as the top of a pool table, the report said.

It said the alleged betting ring was discovered while HMAS Success was visiting Singapore in May and the sailors involved were ordered back to Australia and interviewed.

"The matter concerning sailors who were returned to Australia from HMAS Success in May 2009 remains under investigation, so the veracity of any allegations has yet to be confirmed," the defence department said in a statement to Channel Seven.

"The individuals were removed from the ship after an equity and diversity health check, which led to a formal inquiry being initiated," it said.