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Tobacco giant Philip Morris has threatened to sue the Australian government over its plan to introduce plain, brandless packing for cigarettes.

Australia's government has proposed to ban logos and branding on tobacco packaging.

Hong Kong-based Philip Morris Asia said the legislation violated an investment treaty between Australia and Hong Kong.

Philip Morris is the world's largest tobacco company.

The company said it had sent a legal notice to the Australian government setting a mandatory three-month period for the two sides to negotiate on the issue.

It warned that if no agreement was reached in that time, it would seek financial compensation.

"Failing that we aim to go ahead with a compensation claim for the loss to our business in Australia that would result from plain packaging," said Philip Morris Asia spokeswoman Anne Edwards.

The company said that the amount of potential compensation would be decided by a panel operating under the United Nations International Trade rules.

"We estimate it may be in the billions (of dollars) but ultimately it will be up to this panel to decide," said Ms Edwards.

The tobacco industry has been up in arms against the proposed changes, which are expected to be implemented from January 2012.

It has been running TV advertisements hinting that the changed laws are turning Australia into a "nanny state".

British American Tobacco, another big cigarette company, has said that the government's plans infringe international trademark and intellectual property laws.

However, Australia's Prime Minister Julia Gillard said that she would push ahead with the new packaging laws.

"We're not going to be intimidated by big tobacco's tactics, whether they're political tactics, whether they're public affairs kind of tactics out in the community or whether they're legal tactics," said Ms Gillard.

"We're not taking a backward step. We've made the right decision and we'll see it through," she added.